Stocks ended the week in an ugly fashion with the SPX down about 1.25%. There was enough in the bad sentiment train with Greece, Euro Area deflation, poor GDP and Russia annexing another part of the Ukraine. Not the stuff of rising markets with earnings only tepid this season. So far most companies that are reporting are doing better than estimates. Not 80% to blow it out but just ok.
The market did not like CAT or MSFT earnings today. It actually felt good to know stocks could sell off on bad news instead of the heroin induced QE state of suspended animation that has taken over equity prices for the last couple of years. I don’t think the MSFT earnings were 10% bad but the market did not agree with me. We are not talking MSFT, we will talk AAPL.
The weekend provided little real excitement as the Greek elections turned out worse than expected and no one cared. The leftists are in power but what they are going to realize is they have little choice. That seems to be the consensus from the reaction in European and US stocks. VIX managed to turn in a new short term low to close 15.58.
The news out of Russia is worse. The civilian population is suffering in the Ukraine again and Standard and Poor’s downgraded Russian Debt. In March of 2014 this news out of Russia would have tanked the market and sent the Russian equities into the tank. VIX could care less but the RSX did sell off after a recent rally.
Stocks made a little run down today on bad UPS earnings and some worries about the weekend vote in Greece. If folks are paying up for SBUX coffee, things cannot be that bad so we will blame the Greeks. Even after the ECB made their made policy announcement the Euro continued to sell off. I guess the question is why would you buy European sovereign debt? Spain yields nothing, you have to pay the Germans and Greece is always on the brink of default. The 10 year Treasury is still looking pretty good even after the dollar rally.
The ECB finally announces a bond buying program of their own. We will call it Euro QE. At the rate the Euro is crumbling there won’t be much left of the bond buying program in dollar terms as the Euro rushes pack to parity with the US dollar. Stocks love the QE since they takeoff after a whiff of it is announced.
Witness the 5 day demise of the VIX. The near 23 handle on Friday last week was reduced to 16 today. At least in the short term the big moves we have had in 2015 should start to subside. It is hard to remember the 8% realized vol markets of 2014 since we have averaged over 14% since the beginning of the year. Intraday realized is even higher.
Any domestic news today was overshadowed by the Swiss pulling the currency peg on the Euro. The old 1.2 SWF to Euro is gone as the two quickly swung to parity. This led to a rip in the Swiss stock market to the tune of a 10% drop. To put that in perspective the SPX would be down 200 handles on the open for a move like that.
I am not sure what the confluence of news was that made folks nervous but it seemed to be a combination of retail sales, no ECB QE and the latest weak data out of China. That was enough to drive VIX into the 23 handle briefly and set the VIX future curve backward to Aug. We did get a close of Jan VIX close Aug however. The vol traders could not hold the Jan too backward overnight. They could not push it lower however so a little more movement is still expected.
For now, oil has no bottom. The drop is way beyond the falling knife stage and into the flying guillotine stage. Markets tend to worry when things run in one direction and oil prices have been a one way freight train. At this point it looks like the price of oil won’t stop dropping until the producers stop, well, producing. One stock enjoying the crash in oil prices is FRO.
FRO is an oil tanker company that should benefit from the all the oil countries want to buy but could not afford at the start of 2014. FRO was a $1.5 stock in late Nov and now it is on its second gap as it trades just over $5 today.
2015 is starting off as the year of many swings. For all the big daily moves in 2015, equities have not really gotten anywhere. The post-FOMC rallies are fueled by the notion of lower rates and we run. Then the sad realization of why we need lower rates hits and we sell off. The only think I can say for this year is that the swings are solid and VIX is off the basement floor.
With stocks ringing up another banner year the most unloved asset is making a move into the close. No I do not mean oil. That asset is volatility. VIX is up 1.60 to 17.52 as I write this as players are getting very nervous moving into 2015. The relative volume landscape tells a more enlightening story.