Wednesday, December 30, 2015
(Note: Mark Vickery will write this note on Thursday while I am away.)
Stocks are following Tuesday’s gains with a modestly lower open in today’s session, with the stock market action broadly following developments in the oil patch. It is hard to make much sense of the market’s recent moves given the paucity of real economic drivers in a backdrop of seasonality-induced thin volumes.
With just two trading sessions left in the year, stocks are effectively flat for the year, with the Tech-heavy Nasdaq as the only major market with positive gains for the year. The S&P 500 index appears on track for a flat finish for the year, but there are big winners and losers at the sector levels.
Half of the 16 Zacks sectors within the index are in negative territory for the year, with five sectors double-digit losers. Besides Energy, these big losers include Transportation, Utilities, Basic Materials and Autos. The Technology sector is positive for the year, but isn’t the best performing sector of the S&P 500 index. That remains Consumer Staples, followed by Business Services, Aerospace and Medical.
If 2016 will be a replay of what we saw this year, as we have been arguing for in this space lately, then should we expect this line-up of winners and losers to continue into the New Year as well? That’s a tough question. But my view is that the line-up will change only marginally in the New Year, the major ones being better performance from the Finance (flat in 2015) and Energy (worst performer in 2015) sectors.
A lot will be riding on how long-term treasury rates behave in response to the market’s evolving view of Fed policy. While long-term treasury rates haven’t done much since the Fed’s first rate hike a couple of weeks back, we are already seeing some tightening of financial conditions in parts of the bond market, with widening spreads in the high-yield market starting to make it difficult for some players to access credit. This could very well be a function of developments in the oil patch and not a result of Fed policy, but it is nevertheless a notable change in market conditions.
Wishing all of you a happy, healthy and prosperous New Year.
Sheraz Mian
Director of Research
Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends reports. If you want an email notification each time Sheraz Mian publishes a new article, please click here.
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