Stocks fluctuated on merger and earning news as the Dow closed down about 100 points and the NASDAQ up 20 points. Approximately 140 S & P 500 companies will post results this week, results that have been dumbed down considerably. Analysts are expecting earnings to slump through September, albeit the degree of this decline is open to wide discussion.
And then there are interest rates. Most valuation models are comprised of corporate cash flows discounted by some interest rate. Similar to earnings, the discussion regarding the timing of a change in interest rates is wide and intense.
To add to the uncertainty is oil prices. Similar to earnings and interest rates, opinions are varied regarding where crude will trade by September. I am bullish on crude for a myriad of reasons including the distinct possibility that spare capacity may be dwindling as Saudi Arabia is pumping at full throttle. Some are suggestingif conditions remain unchanged, excess global daily global production will fall from around 1.4 million barrels daily to about 700,000 barrels.
Some have commented today’s environment is more uncertain than years past. In many aspects I agree with this view given there is a lack of conviction on many levels and as inferred above there is considerable uncertainty at the Fed. I am not suggesting the Fed is omnipotent; the markets however had become adjusted of near unanimous thinking from this august body.
All of the above is impacting trading. Some will opine this lack of certainty is perhaps preventing a major market decline, a view that I share. However this uncertainty will also ensure volatility will remain.
Last night the foreign markets were mixed. London was down 0.65%, Paris down 0.43% and Frankfurt down 0.82%. Japan was up 1.13% and Hang Sang up 0.30%.
The Dow should open moderately lower on uncertain earnings. The 10-year is unchanged at 1.90%. Oil is almost unchanged.
