WILD DAY ON WALL STREET: Here's what you need to know

Wow!

In one of the most chaotic days on Wall Street you’ll see stocks ultimately finished lower but way, way off their worst levels of the day.

Near midday the Dow was down more than 550 points while each of the major stock indexes were off more than 3%. Crude oil fell as much as 7% at one point. But in the final few hours of the session all of the major averages rallied with the small-cap Russell 2000 and Nasdaq finishing in positive territory and the Dow swinging more than 1,000 points.

First, the scoreboard:

  • Dow: 15,791, -224, (-1.4%)
  • S&P 500: 1,861, -19, (-1%)
  • Nasdaq: 4,480, +3, (+0.1%)
  • WTI crude oil: $26.55, -6%

And now, the top stories on Wednesday:

  1. That was a wild ride. Overnight stock futures fell as Japan’s benchmark Nikkei index officially entered a bear market, defined as a 20% decline from recent highs. The MSCI all-world stock index as well as London’s benchmark FTSE 100 also joined the Nikkei in bear market territory as the first few weeks of 2016 have seen trillions in market cap get erased from stocks around the world. In the US, stocks cratered to their lows around midday with the Dow losing more than 550 points while the benchmark S&P 500 and tech-heavy Nasdaq were off more than 3%. A furious afternoon rally saw the Dow and S&P nearly trade unchanged at one point while the Nasdaq finished positive.
  2. For those of you that follow the charts — and as Jeff Macke argued on Wednesday, everyone becomes a chartist in a foxhole — Wednesday’s S&P 500 close was back above the big 1,862 “Ebola low” the market put in back in October 2014. Our friends over at Bespoke said in a note Wednesday that with this level taken out stocks would definitely be in a downtrend, breaking from the roughly flat behaviour that has dominated markets over the last 16 months or so. Of course, nothing fundamentally changed about the US economy during the seven or so hours markets were open on Wednesday, and so this theme of a “broken chart” for the market needs time to play out. But you know, we’ve pretty much been through all the reasons stocks could be selling off and we’re now just looking at the charts.
  3. As a refresher, we think it’s important to outline some (but not all!) of the reasons folks have cited for why the stock market has fallen so much this year. The current market sell-off has been blamed on fears over economic growth in China; fears over a global recession — triggered in part or in whole by a strong US dollar; a collapse in the price of oil and other commodities indicating perhaps a global demand shortage and/or this recession coming as another casualty of the strong US dollar; a recession in the US triggered by a change in Fed policy; massive asset sales by sovereign wealth funds struggling with, you guessed it, low commodity prices and a strong US dollar; weak corporate earnings. This list is not comprehensive, but on days like Wednesday you realise that everyone sort of throws around reasons why the stock market is selling off when what we really only have a few ideas.
  4. Gluskin Sheff strategist David Rosenberg — whose 2007 call that the US consumer was entering a recession made the rounds Wednesday and is the kind of stuff legends are made of — said in a note Wednesday that right now, everything is about oil. Rosenberg noted that correlations with oil of all manner of assets, notably US stocks, have been rising steeply over the last year.
  5. From the department of market stats that may or may not mean anything, J.C. O’Hara at FBN Securities noted on Wednesday that the 8th year of a US presidency is often tough for stocks. Recall that the tech bubble bust during Clinton’s final year in office and the whole economy collapsed under the weight of the housing bust in the final year of Bush 43’s two terms. Of course, years ending in “5” after a mid-term election that also fell during the third year of a presidential term were supposed to be super bullish for stocks. That was a bust.
  6. In single-stock news IBM shares fell to a 5-year low on Wednesday after the company’s earnings out after the bell on Tuesday were a disappointment. Quarterly revenue at IBM fell again last quarter, making the 15th straight quarter revenue at the tech stalwart has declined. Deutsche Bank reported preliminary fourth-quarter earnings on Wednesday afternoon and they were a disappointment. DB expects to report a loss of €6.7 billion, which includes a series of legal and restructuring charges.
  7. Reuters got ahold of “bond king” Jeff Gundlach on Wednesday afternoon who attributed some of what seemed like indiscriminate selling to “margin calls,” adding that, “This is not stopping any time soon.” We heard from Gundlach at length last week and the overall message: things are going to be tough in 2016.
  8. Wednesday was a tough day on Wall Street. In a note to clients, Bespoke Investment Group recommend investors take a step back and do something other than look at their screens, especially during the late-morning meltdown. This, of course, is easier said than done. But it is in times like these that the struggles Isaac Newton, arguably the smartest person to ever walk the earth, had with the stock market are worth keeping in mind. In short, Newton lost millions speculating in stocks despite inventing calculus. Investing is hard and emotions get to us all. More constructively, if you think stocks are going to keep crashing remember that dollar-cost averaging works a lot better when stocks are going down, anyway.
  9. In central bank news, the Bank of Canada kept interest rates steady at 0.5%. Ahead of the announcement markets were roughly split on whether the BoC would hold or cut rates in the face of a sharply depreciating currency and middling economic progress.

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