1.) Recession is coming – maybe that had a little bit of credence until yesterday’s jobless claims number. Over the years, reading Jeff Miller, Bespoke and even Brian Wesbury at First Trust, jobless claims are some of the most reliable, pristine and accurate economic data we get on a real-time basis. Seems unlikely a deep recession is headed our way, with the exception of possibly the oil patch, which leads us to #2;
2.) The withdrawal of liquidity (i.e. fed rate hikes and ECB stopping QE) may be having its intended impact. As the training wheels are removed from the economy, the uber-sensitive markets might be reacting in kind, as the junk is withdrawn from the liquidity addicts. This could be like 1994, without the earnings growth, The thought of negative rates in the USA is somewhat frightening. It would be interesting to see how Americans might react to that policy. Personally, I dont think it will ever happen. QE 1 – QE 3 showed that the Fed has and will use other options.
3.) Core SP 500 earnings growth is just 2% as of last week (see here) down from 10% in q1 ’15 and 5% in Q3 ’15. Everybody not living in a cave knows that Energy and Basic Materials has been a drag on SP 500 earnings since Q4 ’14, but the other sectors were holding up until Q4 ’15. Revenue growth is just barely positive too.
4.) China slowing ? I didnt know a bunch of ex-Commie’s masquerading as capitalists with all the sophistication of two teenagers trying to procreate for the first time, could send the global stock and bond markets into such a convulsion. Certainly the currency markets could be impacted, but a global, synchronized bear market ?
5.) Maybe this is simply a long-overdue 20% correction for the SP 500 – one not seen since 2011 ?
6.) European banks with large derivative books coming home to roost. The damage to DeutscheBank and Credit Suisse is talked about nightly on CNBC, but what about Bank of America (BAC) and Goldman Sachs (GS), and Morgan Stanley (MS) ? Was or is counter-party risk still an issue ? Wasn’t the counter-party risk the issue in 2008 ? What good then was Dodd-Frank, CCAR (Comprehensive Capital Analysis and Review) and the complete stifling of the US Financial system if European banks can dent the whole structure all over again ? Bank of America has been sold from client accounts – what good is it to own a value stock like BAC if it only goes up 25% in a good market, and then corrects 40% in a correction ? Really I’d rather own GS, and have been picking away at the brokerage giant.
7.) The collapse in the Energy sector is driving deleveraging at sovereign wealth funds, and hedge funds, and the talk is that some book is unwinding painfully.
8.) Management turmoil at Bridgewater Associates, Ray Dalio’s labor of love and the largest hedge fund in the world.
9.) A brutal sector rotation from 2015’s winners to 2015’s losers. Large-cap Technology and FANG pounded, the worst sectors of last year starting to stabilize.
10.) Strong yen – the carry trade in Japan unwinding after 25 years ? Check the strength of the yen from 125 to 112. Per one technician I follow, that isn’t good. Kurodo hinted that he might need to continue to devlaue the yen, but the yen didn’t drop after the comments.