What is going on with the European bank stocks? As you may know, the leading European banks stocks are now trading below their 2009 lows. This is not a healthy sign for stock markets around the world. Leading financial stocks such as Deutsche Bank AG (NYSE:DB), Credit Suisse Group AG (NYSE:CS), Banco Santander, S.A.(NYSE:SAN), and UBS Group AG (NYSE:UBS) are just a handful of stocks that remain under steady selling pressure nearly everyday. The talk of negative interest rates seems to add to the weakness in these stocks. Then the flattening yield curve is also something that is very negative for these stocks. The derivative markets are rarely talked about these days, but they are possibly the biggest problem with all of the global financial stocks.
These problems in the European bank stocks are now spilling over to the U.S. banks. Leading U.S. financial stocks have been plunging recently. Just look at a chart of JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), Citigroup Inc. (NYSE:C), and Wells Fargo & Company (NYSE:WFC) and you will see how quickly these stocks have fallen since December 2015. Despite the decline in the large bank stocks the Federal Reserve (U.S. central bank) continues to stand firm that the economy remains fairly strong. Has the Federal Reserve ever gotten a crisis correct?
This time around there are financial problems in China, Japan, and Europe. All of these enormous economies are printing money in one form or another. Yet, the major stock market indexes are all plunging lower. This problem is not going to be easily fixed by the central bankers anytime soon, so stay on guard as 2016 is going to be a very volatile year. Traders and investors should continue to watch the leading European financial stocks for clues to the future action in the markets.
Every analyst and their mother are screaming about a continued massive collapse in the stock market. The fear is palpable, it tastes like onion and garlic. Billions of Dollars are being pulled from hedge funds and mutual funds on a monthly basis. There is significant fear at every turn. While this is true, there is a small chance the market could surprise everyone and head to new all time highs. Let's look at what would have to happen to create this scenario?
1. Oil would need to head back to $50/barrel. This would alleviate major concerns over oil company debt. The move would need to happen quickly to avoid major defaults. The time frame would be in the next month. If oil shoots back up, the banking stocks would jump higher as investors stop worrying about how much exposure they have to the impending defaults.
2. Janet Yellen would need to give the pause signal for future rate hikes for the remainder of 2016. This may happen if the US stock markets continue to stay shaky and the global recession continues to worsen.
3. China infuses a massive stimulus package that starts seeing growth return. Any uptick in economic data in China will send the world markets soaring. In addition, it would add fuel to a commodity rally.
4. Investor sentiment gets so bearish, a short covering rally could be epic and cause the markets to retest and break the highs. Investors, realizing they are on the wrong side, jumping back on the buy side.
While intriguing to think about, the likelihood of these things happening in the near term of maybe 5%.
It is amazing to think how smart everyone can look when stock markets are rallying higher everyday. Since March 2009, the S&P 500 Index has surged higher by 1468 points. As you may know, the S&P 500 Index peaked out in May 2015 at 2134.72. It is safe to say that this rally from the 2009 lows was one of the biggest price advances ever in stock market history. Many traders and investors give the credit of the stock rally to the Federal Reserve Bank's easy monetary policy. This reason is certainly one of the primary reasons why the stock markets surged higher. Other reason for the enormous advance in stock prices were due to stock buybacks, corporate consolidation, and bankruptcy restructuring.
It is safe to say that when the stock markets were rallying higher it was almost easy to make money. Simply put, if you picked a stock that went lower the overall market would help to rescue the equity from the decline. In other words, the stock rally would bail out a bad stock trade. That is why people love bull markets. This is a normal condition of easy monetary policy. Now these markets are not so forgiving. Perhaps you have noticed what happens to stocks when the company misses earnings, they get slaughtered. Just look at stocks such as LinkedIn Corporation (NYSE:LNKD), or Tableau Software, Inc. (NYSE:DATA) recently. These stocks have lost half of their market capitalization after reporting poor earnings. Other companies have been sold off sharply just for initiating poor guidance. The point is that markets are now different and will show no mercy on companies when the news is bad.
So how can traders and investors make money at this time? Simply put, the buy and hold method does not work in bear bear markets. Remember the old market adage, markets take the stairs up and the elevator down. In other words, stocks decline much quicker in bear markets. The only way to make money in this type of environment is to understand and use charts. You must simply understand the technicals. The days of listening to P/E ratios, book value, earnings per share, and the rest of the fundamental jargon is over. You must simply be a short term trader that buys solid technical support levels and sells major resistance levels. At this time, the path of least resistance is downward. Nearly every trading session we see huge price swings in the major stock indexes and this how you can make money in this market. If you are going to try and use the Warren Buffett (buy and hold) approach you better hope that you live a long long time because it could be a while before some of these stocks see their 2015 highs again. Simply put, if you are not a short term trader you won't survive in these markets.
The United States Oil Fund LP (ETF) (NYSEARCA:USO) fell sharply today as more economic fear swooped in to freak investors out. As it fell, it hit a major level that only technical traders would see. This level should blow your mind because it is exactly where oil went to and why it bounced and could continue to bounce. Anyone not reading the charts should learn how. There are millions in profit available to those that know this stuff.
Gareth Soloway [more]
As we all know, the Federal Reserve raised the fed funds rate by 25 basis points in December 2015. Since that quarter point rate increase the stock markets around the world have been tumbling lower. Volatility has surged higher as central banks around the world scramble to figure out there next move. In the past, jawboning by the Federal Reserve has been used to calm the markets, but this time many traders and investors believe that the Federal Reserve has its hands tied. Stocks now seem to come under severe selling pressure on a daily basis.
Recently, the 10-year U.S. Treasury Note yield has plunged to 1.72%. This is signaling that investors would prefer to be in U.S. Treasuries instead of stocks. Oil prices have plunged to less than $30.00 a barrel signaling weak global demand and a stronger U.S. Dollar. What can stop these markets from deflating further? In the past, the answer to a deflating market has been lower interest rates and add lots of liquidity (quantitative easing) to the system. These days the large European banks such as Deutsche Bank AG (NYSE:DB), Credit Suisse Group AG (NYSE:CS), Banco Santander, S.A. (SAN), and UBS Group AG (NYSE:UBS) are making new multi-year lows on a daily basis. In fact, most of these Euro bank stocks are making new all-time lows. Something is wrong when leading financial stocks have this type of price action.
Problems in Asia have been increasing on a daily basis. The Nikkei 225 Index has dropped by nearly 4000 points since early December. The Shanghai Composite Index has plunged by nearly 50.0 percent since its June 2015 high. What are these central banks going to do to help stabilize these markets?
In late 2008, the central banks around the world staged a very coordinated effort to inflate the stock markets around the world. Can they do this again? After all, the Peoples Bank of China, the Bank of Japan, and the European Central Bank are all doing there own version of quantitative easing right now. So what is wrong? Why are markets tumbling? You see, the Federal Reserve is going to have to join the money printing party once again. The Fed is the missing piece of the liquidity puzzle. After all, most all commodities are priced in U.S. Dollars. The strong U.S. Dollar is one of the primary reason for the weak oil and commodity prices that we are seeing at this time.
Everyone should forget further rate increases by the Federal Reserve. The fed is going to need to cut interest rates and eventually start another QE program to get these markets up around the world. Maybe this time the central bank to the world (Federal Reserve) won't call it quantitative easing, but it's going to need to do something if it wants these markets to stop deflating. In my humble opinion, QE-4 is around the corner. [more]