Banks Buck General Weakness After Earnings Reports

The market is sharply lower this morning, after some weaker than expected economic reports (housing starts) and more news that China is tightening its monetary policy.

Bank stocks are the lone group that are bucking the early weakness after a batch of better than expected earnings reports. Banks like US Bancorp (USB), State Street (STT), and Bank of New York (BK) all reported solid earnings and their stocks are higher. Bank of America (BAC) reported results below expectations, but its stock is higher also. BAC is my fav of the group, and I think that as earnings begin to "normalize" later in the year, the stock will start to reflect the inherent value in the bank's franchise.

The issue in China is that authorities have instructed some banks to restrict lending for the rest of January to ensure higher capital ratios and avoid an overheating economy. China's stock market fell -2.9% on the news, but overall I think it is a positive. In the short-term, slower growth in China may sting, but longer-term if they can avoid a bubble scenario in their property market that will extend their economic recovery cycle.

In other earnings news, CREE trounced the estimates and the stock has gapped to new highs. IBM reported a very solid quarter (I was on the conf call), but the stock is selling off on conservative guidance. I think guidance will move higher as the year progresses, and I would look to add to my positions on further weakness.

The dollar is spiking higher today, and that is weighing on commodities across the board. Oil is down to $77.50 and gold is all the way down near $1110. I think the dollar stabilization could last a while, and that may continue to weigh on commodity and energy/materials stocks in the near-term.

The 10-year yield is lower to 3.65%, and the VIX is spiking higher by 11% to 19.43. The VIX has been in a long downtrend, so occasional spikes higher should be expected. I expect the VIX to remain rangebound most of the year, and do not have it on my radar right now as a useful trading tool.

Trading comment: It's still early, so we could recover some of this morning's losses by the close. The market is just coming off overbought levels, so these types of dips are not surprising. I still like the market, and would use further weakness to add to my favorite names, which I have mentioned here frequently. Today, I am adding a little to AAPL, which I think will be one of the few stocks that will not selloff after its earnings announcement.

long AAPL, BAC, IBM