Stock Markets Recover From Alibaba, Yuan Shocks - Markets This Morning

  • Stocks started down, but the selling stopped at noon and the averages finished near unchanged.
  • Energy and tech stocks fueled the rally.
  • What happens tomorrow here depends on what happens in China tonight.

Believe the Comeback? Stock Markets Rebound

Stock Markets Recover From Alibaba, Yuan Shocks - Markets This Morning

U.S. stocks staged a comeback from their lows yesterday, with the Dow and S&P 500 finishing nearly unchanged and the NASDAQ actually eking out a gain.

It didn’t start that way. There was an enormous selling wave in the morning, which had all the averages down more than 1% by noon. Then the selling stopped. Traders suddenly noticed that oil and gas prices were rising and bid up energy stocks. Other buyers decided the tech stocks were a bargain.

Cisco Earnings Q4 2015

After the market closed Cisco earnings beat estimates with net income of 59 cents per share against estimates of 56 cents. Revenues of $12.8 billion were 4% ahead of a year ago, and beat analyst estimates of $12.65 billion. Past quarters focused on lay-offs, this quarter Cisco (NASDAQ:CSCO) reported hiring in the areas of cloud and security.

Maybe the clouds are lifting.

But What About China? Stock Markets Wary, But Stabilizing

Chinese stocks were still being hit on the falling yuan, although not as hard as the port of Tianjin, near Beijing, which suffered two massive explosions overnight that killed 7 people.

On Wall Street Alibaba fell 5% after disappointing results. Alibaba (NYSE:BABA) apart, Baidu (NASDAQ:BIDU), the Chinese search engine, dropped 4.25%. But in both cases, as well as on Chinese solar companies such as JA Solar (NASDAQ:JASO), Trina Solar (NYSE:TSL)  and Canada based Canadian Solar (NASDAQ:CSIQ), the U.S. pattern of the day held. That is, a sharp sell-off followed by a gradual rally. In some cases this resulted in a net loss on the day, a drop of 1% for JA Solar. In other cases there was a gain, as with Trina Solar, up .8%.

Another loser was Citigroup (NYSE:C), which has a lot of Chinese loan exposure and finished down 1.27% at almost $57. Still another loser was Yahoo (NASDAQ:YHOO), most of whose assets are shares in Alibaba. Yahoo shares fell 4.27% to about $34.50. But note this last number wasn’t as bad as the fall in Alibaba itself, meaning U.S. tech is finding new favor.

Thus Apple (NASDAQ:AAPL) was up 1.5% to almost $115.25 after falling early in the day to less than $111, which would have been a 2% loss. In after-hours trading the comeback continued, with Apple up another 50 cents/share.

Is Energy A Dead Cat Here? Energy Stocks Find Favor

As noted earlier, energy shares seemed to be enjoying what is commonly called a “dead cat bounce,” the idea being that even a dead cat will bounce if dropped from a high-enough height. (Yes, traders can be cruel.)

The big drillers led the way, like Apache (NYSE:APA), up 3.2% to $49.20, and EOG Resources (NYSE:EOG), up 3.4% to $79.90/share, mainly on hopes that oil prices have started bouncing back from levels below $44 for West Texas Intermediate (WTI), the main U.S. grade. Natural gas was also up nearly 2%, up for the third day in a row to $2.85/mcf. The average uptick in energy stocks was 1.32% on the day.

So What Happens Now? Stock Markets Today

A lot of today's action will depend on what happens to the yuan.

If the Chinese currency falls hard again, there could be a major reaction in the U.S. and Europe, heavy selling based on fears of a currency war and international instability. If the yuan stabilizes and stocks there don’t collapse, you’ll see new excitement for tech and media names in the U.S., and greed will quickly replace fear.

What are the odds? Consider this. If China can regain the trust of global traders, the yuan could be a global reserve currency by the end of the year.

I expect a higher opening.

For your daily dose of handpicked breakfast news, you can check out our stock market news daily titled Markets This Morning.

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