The Story continues to be ENERGY.
As I suggested would happen in yesterday morning’s note, crude oil did drive the narrative yesterday. It wasn’t pretty. All three majors were hit hard as a result of the news out of OPEC, on Friday, in Vienna. The inability of OPEC to coalesce around production limits effectively blew the floor out of crude and, as a result, the energy sector yesterday (XLE – 3.80%). Crude WTI lost 5.85% on the day closing at $37.65/bbl in New York – a 6 1/2 year low and down nearly 40% in 13 months. Clearly, more downside is in the offing. Calling a bottom in crude at this stage is fraught with risk. That said, I just ended an interview with a foreign news correspondent suggesting we may see crude WTI trade to as low as $30.00/bbl in 2016 given the sudden shift in OPEC production policy.
The S&P 500 (-0.70%), Dow Industrials (-0.65%) and NASDAQ (-0.79%) all managed to close well off of the intraday session lows. Volume was mixed, falling on the NYSE (-4.58%) while ticking higher on the NASDAQ (1.67%). From a sector stand point energy (-2.74%) was, not unexpectedly, the leader lower. Financials followed by losing 1.39% on the session. Consumer Staples managed to buck the negative trend by gaining 0.71%. The 10-year closed with a yield od 2.23% – off 2.20% on the day.
The US dollar continued its rally despite the weakness present in US equity markets yesterday. In fact it gained ground against all major currencies. Between weak global demand, accommodative monetary policies abroad and anticipated tightening here in the US by the Federal Reserve, the dollar’s continued move higher seems assured.
Today’s Economic Calendar is thin. The NFIB report will be most interesting and topical as JOLTS is backward looking.
A Subscriber of Kenny’s Commentary contributed to the Water Cooler:
The mass of people are not interest-rate sensitive, they’re gas price sensitive… Interest rates are one of the few tools the government (oops, I mean the Fed) has to control money supply and inflation. Half the population are renters, not home-owners, so interest rates are sitting with the one-percenters in the back seat, while up front the guy doing the driving is watching the cost of gas.
S.F., Simi Valley, California
flickr photo: geoftheref