Sunday, December 20, 2015

Week In Review (12/14 - 12/18)

It was a tale of two halves this week as the market rallied nearly 3% from Monday through Wednesday before succumbing to the volatility that has become all to familiar in recent weeks.  Stocks surged early in the week as investors looked ready to cheer the Federal Reserve's decision to raise interest rates by 25 basis points.  And this seemed to be confirmed after the Fed's Wednesday afternoon announcement that sent stocks higher by nearly 1.5% on the day.  However, Thursday and Friday presented an entirely different scenario as stocks dropped 3.3% from Wednesday's close as the attention appeared to turn to oil's continued collapse.

All told, the S&P 500 was down 0.3% for the week while the Dow Jones Industrial Average and the Nasdaq were down 0.8% and 0.2%, respectively.

The Nasdaq is now the only major domestic index that sits in positive territory on a year to date basis.  It has returned 3.95% in 2015 while the Dow, S&P 500 and the Russell 2000 are all in decidedly in the negative.

The market now seems to be intimately focused on the price action in oil and the impact that may ultimately have on the already troubled high yield aka "junk" bond market.  As the distressed debt market grew larger and larger over the life of this QE to infinity market, the risk of default contagion grew along with it.  Now, with prices in oil/energy and other commodity related sectors (metals/mining) at or near Great Recession crisis levels, there is a real fear that these debt markets could lock up.  

With that fear in the air, stocks have fallen victim to increased selling pressure as asset managers can easily target them to raise cash given their liquid features.

The weekly ratio chart below depicting Consumer Discretionary stocks vs Consumer Staples helps to show the defensive posture that the market has taken over the last several weeks.  There was a failed breakout and now a set-up for a potential move lower in this ratio exists.


With 8 trading sessions left in the year, there continues to be no sign of a Santa Rally in store for 2015 but we'll see if this year has shades of 2011 or perhaps very optimistically 1991...We won't hold our breath.

Here are some of our favorite links from the week past:

Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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