Market selloff: How to weather the storm

U.S. equity markets finished the week on a sour note. Bob Andres, founder of Andres Capital Management, makes sense of the volatility.

Stocks Dive: Wrapping Up a Week of Tumult

By Markets FOXBusiness

Stocks plunged again for the second-straight week as the major averages on Wall Street officially entered correction territory, down 10% from a recent high. The moves come after the markets saw the worst start to a year ever as volatility increased thanks to fresh worries over China’s economy and oil prices that can’t come off their lows.

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These are the biggest trends you might have missed this week in the markets.

Oil Prices Nosedive

Global crude oil prices couldn’t find support this week as they dropped below the psychologically-significant $30-a-barrel range. For the five-day period, West Texas Intermediate crude, the U.S. benchmark, tumbled 11.28% to settle at $29.42 a barrel, the lowest level since November 2003.

Brent crude, the international benchmark, dropped 14.71% for the week to $28.94 a barrel as it reached its lowest settlement value since February 2004.

New concerns about potential supplies from Iran coming onto an already oversaturated global market didn’t help ease investors’ fears about how low prices will go before they begin to see some stability.

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Still, despite the continued drop, Bob Andres, founder and chief investment officer of Andres Capital Management, said there are some investment opportunities to be had.

“What’s really occurred is that you’ve seen what I would see money-good names go down in sympathy with the bad names. So any time, frankly in history, when you get such upheaval, there’s always opportunities, and I believe they exist in the high-yield area,” he said.

On the flip side, Paul Christopher, Wells Fargo Investment Institute managing director and head global market strategist, said he would advise staying as far away from the energy sector as possible.

“The refiners might have a bit better leg up or a better edge as far as demand for refined product is still solid,” he explained, but said he strongly advises dipping toes into the volatile waters at this point.

“Supply is aggravated by fears the economy is going to slow,” he continued. “Industrial production data reinforced that…the funny thing is, the longer prices stay at sub-$40 levels, there’s a more exaggerated supply response.”

Economic Data Provides No Support

Until Friday morning, it was a relatively light week for economic data. But a fresh read on the American consumer and wholesale-level inflation didn’t do much to help  markets find solid ground.

Retail sales data suggested consumers stayed at home last month, saving money they have been spared from spending at the gas pump. After a 0.4% rise in November, for the month of December, retail sales ticked 0.1% lower while Wall Street expected an unchanged reading. Excluding the autos component, sales slipped by the same margin, which was an unexpected decline compared to forecasts fo a 0.2% rise.

“It seems that after broad-based gains in November, consumers took a break,” IHS Global Insight’s director of consumer economics, Chris Christopher, said in a note. “The unseasonably warmer December weather did some serious damage to clothing store sales since shoppers were not willing to fork over money for the latest winter fashion.”

There were some bright spots, though, including in home improvement. Furniture, building material, sporting, online, and restaurants saw gains in the final month of 2015.

“December assisted building material and garden supply stores since many householders were willing to do those home-improvement projects. Electronic stores have been in negative territory for every month in the last quarter of 2015, since many shoppers are buying the latest gadgets and smart phones online,” Christopher added.

Christopher continued by saying that while the data weren’t particularly positive, exercise caution when applying the sentiment to future months since it’s not adjusted for consumer price increases.

“Quarterly consumer good prices excluding food and energy have been in negative territory on a year-over-year basis since the second quarter of 2013, and the third quarter inventory build of 2015 caused many retailers to come out swinging in early November” he said. “Looking ahead, consumer spending growth is likely to be relatively robust and the consumer is still doing most of the heavy lifting in the U.S. economy.”

Other data out on Friday included producer prices, which came in with a 0.2% decline for the month, matching expectations, while prices excluding food and energy rose 0.1%, also matching views.

Fourth Quarter Earnings Season Fails to Excite

Fourth-quarter earnings results from a couple of big names on Wall Street kicked off the reporting season on a relatively positive note. But the joy was short-lived as it was overshadowed by global-growth concerns.

Many on Wall Street have pointed to corporate earnings as the final piece of the economic puzzle. In other words: Don’t judge the U.S. economy in the face of global tumult until we know how stable Corporate America is.

Alcoa (AA) kicked things off with mixed results on Monday. JPMorgan Chase (JPM) and Citigroup (C) beat the Street later in the week, while Wells Fargo (WFC) also revealed mixed results.

Wells Fargo’s Christopher said despite the hope earnings season was thought to bring, he doesn’t expect it to kick start the market.

“It’s going to be a question of how quickly markets around the world get over the fear of decelerating global growth,” he said. “I think in terms of the market being forward looking, the fourth quarter will matter insofar as forward guidance from companies. Even then, we have to get through the worst of winter.”

Andres added that once confidence has been hit, it’s difficult to bounce back.

“One has to recognize that once people get afraid, really afraid because of uncertainty, and we have it on a global basis, a geopolitical basis, and an economic basis here in the U.S.,” he said. “It doesn’t mean it’s going to continue down…nothing goes up or down forever, and markets have a tendency to go too far too fast. You need to look at fundamentals.”

The Week Ahead  

U.S. equity markets will be closed on Monday in observance of the Martin Luther King Jr. holiday. However, after another rough week for China’s benchmark, the Shanghai Composite, which fell into bear-market territory Friday, the lack of action Monday in the U.S. could make for heightened volatility at the opening bell on Tuesday.

On the economic front, a few key pieces of data are set for release next week.

·         Tuesday: No significant releases

·         Wednesday: Consumer inflation, housing starts

·         Thursday: Weekly jobless claims, mid-Atlantic manufacturing  

·         Friday: Existing home sales 

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