Thursday, October 15, 2015

Another raucous day in U.S. equities

After the Dow's 157 point drop yesterday, it was followed by a 217 point rise today.  At one point yesterday, among the basket of more than 60 stocks and 10 ETF's  that are followed closely here, the three top decliners were JPMorgan, Walmart, and Mitsubishi holdings, and biotechs and small caps were down markedly across the board.  That seemed like a fairly good proxy for a sustained directional decline in the U.S. and Japanese markets.  It was not to be as today the top three gainers among that basket were Citigroup and two biotech ETF's, all up more than 4%.

The most dramatic move of the day came at Goldman Sachs, which reported earnings that declined 38% year over year and revenues that declined 18%.  The pre-market opening price was down over 1%, yet Goldman ended up the day with a rise of over 3%.  That's a clear message that lead steer investors price stocks while the media and pundit driven traders do not.  That was refreshing to see. Goldman's significant declines were led by low P/E trading results while high P/E investment banking fee income gained.  JP Morgan recovered its loss from yesterday while BofA was up as well, both up over 3%.  Other major stocks up over 3% today included Fiat Chrysler, Adobe, and Pfizer, with Johnson and Johnson was just below that threshold.

The most attention getting loss of the day was a decline at Netflix of over 8%.  U.S. subscriber growth lagged investor expectations and the anticipated spike in international subscriber growth may still be a few quarters away, if all goes as expected.

What comes tomorrow in the market will be telling in the short term.  A positive day before the weekend would be an endorsement of today's rebound that would make for a good weekend, especially if the Mets manage to win tonight. In the longer term this ongoing significant volatility can make one wonder if there is a trap door under the market waiting to pop open.  That's a worry that apparently keeps some investors awake at night. So far, the economy does not seem to warrant such an outcome, but investor psychology can at times ignore facts.

In a sense, this is a set-up for further gains.  As just said, tomorrow will be interesting.

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