The credit markets? They had their second-worst start to a year ever. The only worse year was 2008, which you probably don’t need me to remind you was a disaster for investors.
It looked like they caught a break overnight when the Chinese market stabilized. Then at 8:30 a.m., the Labor Department released some “hot” jobs figures.
The economy added 292,000 jobs in December, well above the average forecast for 200,000. The readings for October and November were also revised higher by a combined 50,000 jobs. That pushed full-year additions to 2.65 million, down from 3.1 million in 2014 but still a solid result.
|The unemployment lines got a little bit shorter … Will that help stop the market bleeding?|
By industry, construction added 45,000 jobs, health care added 52,600, and even manufacturing added 8,000 positions. Temporary help jobs rose by 34,000. But mining shed another 8,000 jobs, bringing total 2015 losses to 129,000.
On the flip side, the unemployment rate held at 5% rather than improved further. Wages went nowhere too, with average hourly earnings unchanged from the prior month. The year-over-year rate of improvement (2.5%) missed forecasts by two-tenths of a percentage point.
Dow futures surged to as much as +220 or so after the figures came out. But they started fading shortly thereafter. After attempting a midday bounce, the Dow plunged into the close, finishing down 167 points.
Not only that, but many of the financial stocks I watch suffered huge technical breaks earlier in the week … then took out yesterday’s lows today. The Russell 2000 Index also sank to yet another 15-month low. And several corners of the credit market continue to behave as if something bad lurks.
Just look at the SPDR Barclays Convertible Securities ETF (CWB), a benchmark ETF that tracks the convert market. Those are hybrid securities that share some characteristics of both stocks and bonds.
CWB’s top holdings are in sectors like pharmaceuticals, banks, techs and autos, NOT energy. In fact, energy only represents 5% of its portfolio. Yet it’s getting hammered by heavy liquidation. Excluding an anomalous “flash crash” print back in the August market chaos, it hasn’t been this low since June 2013.
|The big selloff.|
So sure, the jobs figures were strong. The auto sales figures we got earlier in the week were, too.
But the market reaction to those news items suggests a couple of things to me: A) The problems in China, and throughout the emerging markets, are so severe, they offset U.S. domestic economic strength and B) Investors are placing bets that this is “as good as it gets,” and that the economy here will weaken later in 2016.
We won’t know for sure if those judgments are correct until later. But I think they probably are. Indeed, I’ve been worried sick about where markets are headed since last spring — and nothing I’m seeing now tells me that stance is wrong.
Want more guidance and more details on what I see ahead? Well, my gala 2016 Safe Money forecast issue was just posted online yesterday. If you’re a subscriber, I urge you to read it cover to cover — and act on the recommendations.
Not ready to take that step? Then just be sure to buckle up and take protective action. Specifically…
- Carry a higher percentage of cash than you did in 2009-early 2015.
- Hedge or target downside profits with select inverse ETF and option positions (at the right time).
- If you’re going to own stocks, favor non-economically sensitive stocks over growth and industrial names.
- And keep your eye on those sickly financials and the action in the credit markets. They could hold the key to where we go next.
Now I’d like to hear from you. What do you think about the jobs figures, and the market’s reaction to them? Is this as good as it gets? Or do these figures show the U.S. economy is sailing along just fine, despite the turmoil in China? How will the Fed react to this news, and do you think they’re on the right course? Hit up the comment section below to weigh in.
The action in China, and the market reaction here, was Topic #1 at the Money and Markets website in the past 24 hours.
Reader Jim said China is in an impossible bind: “The Chinese Communist Party has tried to create a state-controlled free market system. It’s an absurd concept that never had a chance to succeed. They have lost any element of control they ever had.
“Their stock market is tanking, their capital account is evaporating, the yuan is overvalued, their banking system is a joke, their billionaires are disappearing, and they have no idea what to do next. What happens next isn’t up to us.”
Reader Gordon picked up on that message, saying: “How can the Chinese stock market or any market be a free market system? We accept all the gains with cheers and champagne. But then when things turn ugly and the gains start to evaporate, all governments come up with fancy ideas to slow the markets — like circuit breakers, brokers throwing in cash to ‘make’ the market, etc.
“We want the profit but not the pain. Look for a China bounce. But the exit door is getting narrower.”
Reader Kevin R. added: “Crooks will be crooks. I guess the robber barons of the financial markets aren’t satisfied with their gains, and need to dip more into wells that they drink from.”
To those comments, Reader Howard responded: “If you are suggesting that markets are rigged against ordinary players, you are right. The Chinese are newer to the game and more open about it.
“I was following an overseas bourse yesterday, and then there was a sudden massive change as the Chinese markets opened. Programmed trading took control. Cash is still a good place to be at the moment.”
But not everyone is so worried or negative on stocks. Reader $1,000 Gold offered this more optimistic take: “I’ve loaded up on stocks during this correction. I’m scared to death to buy any more, but if I don’t take on risk, there’s no reward.
“Everyone knows we’re at an inflection point — watching and waiting to see what happens. If the bears are wrong, we’ll enter the last up wave where everyone gets in. Unfortunately for them, that usually happens right before a recession.”
I really appreciate everyone’s take. You can put me squarely in the cautious and worried camp — for all the fundamental and technical reasons I’ve discussed in recent months.
That doesn’t preclude sharp, shorter-term bounces. They’re part and parcel of every bear market I’ve watched, studied, or traded my way through and we are oversold in the near-term.
But it sure does appear the equity market is now following all the breakdowns in credit, commodities, and currencies that I’ve been harping on since last spring. Considering how far many of those other markets have fallen, stocks may have a lot of “catch down” to do in the months ahead.
Have a great weekend … and be sure to add your voice to the debate when you get a minute. You’ll find the discussion board below.
Saudi Arabia is out there floating the idea of selling shares in its national oil company, Saudi Aramco. It reportedly may list a percentage of its shares, a portion of its businesses, or otherwise take the company public in a limited fashion.
But it’s hard to see investors stepping up to the plate and buying aggressively given the fact oil prices are at 11-year lows. There’s also a lot of skepticism about Saudi Arabia’s willingness to list on major worldwide exchanges, and provide the detailed financial and reserve data it would have to in that case. Aramco has historically played its cards very close to the vest.
European authorities believe they found the location where the Paris bombers constructed their deadly explosive devices. Belgian officials say they found materials used to put together the bombers’ suicide belts in a Brussels apartment, and have a man in custody who rented the unit.
Chinese stocks rallied around 2% overnight after officials refrained from devaluing the yuan currency for one day, and after the government made state-backed funds buy Chinese equities.
But many investors say they’re losing faith in China’s competence, given all the flip-flopping on policy and the belief officials are just throwing things at the wall to see what sticks. Said one emerging market fund manager in a Bloomberg story: “They are changing the rules all the time now … The risks seem to have increased.”
So what do you think? Would you buy into the world’s largest oil company here? Will Europe get a better handle on terrorism in the coming months? Is China finally getting ahead of the market turmoil, or is this just a temporary respite? Let me hear about it.
Until next time,