26Jan2016 Market Close: DOW Closes Up 282 Points, American Crude Settles At Plus 4% On Hopes Of OPEC Reducing Output

Wall Street rebounds, helped by oil, earnings

NEW YORK (Reuters) – Wall Street rebounded over 1 percent on Tuesday, driven by a surge in oil prices and strong quarterly results from 3M, Johnson & Johnson and Procter & Gamble.

Trump drug cost comments raise new risks for pharma stocks

NEW YORK (Reuters) – Comments from Republican presidential front-runner Donald Trump that Medicare could reap huge savings by negotiating with drugmakers raise new risks for the biotech and pharmaceutical industries, whose shares have been pressured by criticism from Democrats.

Lockheed seals services deal with Leidos, forecasts profit below view

WASHINGTON (Reuters) – Lockheed Martin Corp on Tuesday announced a $5 billion tax-free deal to combine its information systems and government services business with Leidos Holdings Inc , and forecast a lower-than-expected profit in 2016.

Oil surges on hopes for output cuts to trim glut

NEW YORK (Reuters) – Oil prices ended more than 4 percent higher on Tuesday as investors hoped OPEC and non-OPEC producers were inching closer to a deal to reduce output amid one of the biggest supply gluts in decades.

U.S. consumer, housing data underscore economy’s resilience

NEW YORK (Reuters) – U.S. consumer confidence improved in January despite a stock market rout and house prices accelerated in November, suggesting underlying strength in the economy despite a sharp growth slowdown in recent months.

P&G core sales return to growth due to price hikes

(Reuters) – Procter & Gamble Co’s new chief executive is off to a “nice start” as the company’s core sales returned to growth in the second quarter, helped by price hikes and as it shed underperforming brands.

Facebook’s price-earnings ratio near record low ahead of fourth-quarter report

SAN FRANCISCO (Reuters) – A recent drop in Facebook Inc’s stock has left the online social network trading at earnings multiples near record lows as it prepares to hand investors its fourth-quarter report.

JPMorgan to pay Ambac $995 million to settle RMBS-related claims

(Reuters) – Bond insurer Ambac Financial Group Inc said JPMorgan Chase & Co will pay $995 million to settle disputes related to residential mortgage-backed securities.

Apple set for slowest ever iPhone sales growth

(Reuters) – Apple Inc is expected to report a 1.3 percent increase in iPhone sales in the holiday quarter, its slowest ever and a far cry from the double-digit growth investors have come to expect.

How The Current Sell-Off Stacks Up To All Previous Bear Markets

Based on 43 large sell-offs in the world’s major equity markets, Morgan Stanley gauges how the current market slide compares to bear markets and bull corrections through history. While they have tended to last about 190 business days, with drawdowns around 30%, the current environment is considerably weaker than the typical bear market beginning…

The Bear Necessities – What’s the ‘Typical’ Sell-Off Environment?

Valuations tended to be cheaper than those seen at current sell-off’s peak, while macro (GDP, inflation) tended to be stronger at the start of bear markets.

If ACWI followed the script precisely, it would imply ~10% downside from current levels over the course of four weeks.

Equity markets started the current sell-off from a more expensive point on most valuation metrics and remain more expensive vs. previous troughs.

The weaker macro vs. previous market sell-offs argues for being defensive and avoid stretching for beta. Overall, we prefer credit over equities, as it is almost priced for a recession.

Full Bear Market Almanac below:

The Four Scariest Charts For Energy Investors

Much has been said, and many charts shown demonstrating how collapsing oil prices equate with a recessionary (and, according to at least one Dallas Fed respondent, “depressionary”) hit for the US energy space and manufacturing sector first, and subsequently, contagion for US banks various other investors in the US shale space, and ultimately the broader economy.

Perhaps too much.

So in an attempt to simply some of the confusion, here are just four charts which, in our opinion, are among the scariest for energy investors.

First, plunging oil prices mean sliding revenues, resulting in collapsing cash flows and soaring leverage ratios…

… Ratios which will likely deteriorate substantially if one takes the price of oil as a leading indicator where EBITDA will be 8 months from now:

Should the deterioration continue it will suggest even further widening of junk spreads, which will mean a spike in default ratios, which will result in substantial impairment charges for underreserved banks and a hit to both profitability and capital ratios.

Here Are The Stocks Emerging Markets And Wealth Funds Are Quietly Liquidating

Last weekend we explained how as a result of the dying Petrodollar and the plunging price of oil, emerging markets and Sovereign Wealth Funds such as the ones listed below…

… are forced to liquidate tens of billions in equities around the globe in what has become a largely indiscriminate liquidation wave.

As JPM quantified, “assuming selling in accordance to the average allocation of FX Reserve Managers and SWF across asset classes, we estimate that the sales of bonds by oil producing countries will increase from -$45bn in 2015 to -$110bn in 2016 and that the sales of public equities will increase from -$10bn in 2015 to -$75bn in 2016. There is little offset to this -$75bn of equity sales from accumulation of SWF assets by oil consuming countries, as we expect these countries to spend most of this year’s oil income windfall. “

But while over the past week it became well-known that SWFs and EMs are selling equities into the accelerating drop in global equity markets, nobody had actually done an analysis of which stocks are most at risk.

Until today.

In a report released earlier, Deutsche Bank writes “beware European stocks with high EM government ownership” adding that “Fed tightening and lower oil prices have led to EM capital outflows and falling EM FX reserves” as shown in the chart below:

It then notes the following:

Amid Pressure, AIG Will Pare Down

American International Group will sell its broker-dealer network, conduct an initial public offering of its mortgage-insurance unit and more aggressively cut costs, as pressure from investor Carl Icahn grows.

Stocks Push Higher on Oil Rebound

Stocks rose in the U.S. on Tuesday, lifted by a rally in oil prices and a number of stronger-than-expected earnings reports.

Oil Prices Rise on Hint of Supply Cuts

Oil prices rose above $30 a barrel as traders speculated that large producers might be more willing to cut production, which could alleviate the global glut of crude.

Emerging Markets Report: China warns Soros against ‘declaring war’ on its currency

Days after billionaire George Soros forecast a hard landing of the Chinese economy, Beijing retaliates by warning the high-profile investor from betting against its currency.

Coach says Stuart Weitzman bucked the trend with solid boot sales

Coach said its Stuart Weitzman brand saw solid quarterly results from boot sales despite warm winter temperatures.

Bond Report: Treasury yields tick lower as stocks rally

Treasury prices switched between small gains and losses Tuesday, but finished slightly higher, pushing yields lower a day before the Federal Reserve concludes its policy meeting