Financials Sold Indiscriminately

US equity markets registered modest gains on Monday helped in part by some overnight stability in global equity markets and a modest rebound in crude prices. The Dow Industrials (+0.72%), S&P 500 (+0.78%) and NASDAQ (+0.93%) all closed at the high end of their respective intraday ranges. Volume on both the NYSE (-39.96%) and NASDAQ (-49.545) contracted in typical post-quadruple witching fashion.

Yesterday’s economic releases were few. The Chicago Fed National Activity Index was a disappointment. It came in at – 0.30 versus expectations calling for 0.15. The name of the monthly release is a bit misleading. A casual observer might think the CFNAI is Chicago specific but it actually does measure national economic activity using 85 separate national metrics.

The flash points in the equity trading landscape yesterday were limited to retail-centric stories as is normal for this time of year. Nike rose ahead of earnings. Fitbit rose on account of a bullish call resulting from robust late holiday season sales. Disney on the other hand remains under pressure despite a record weekend box office haul. Net/net, Consumer Discretionary provided a welcome and positive tone for investors exhausted by the crude induced pounding equities have been on the receiving end of in recent weeks.

Consumer-centric sectors and Financials were the out performers on the day. Consumer Discretionary (+0.88%), Consumer Staples (+0.99% and Financials (+1.12%) provided much of the lift while Energy (-.035%) and Communications (-0.52%) fell. Though the energy sector registered a loss on the day, crude WTI actually rose $1.01. or 2.8% to close at $34.74/bbl.

Crude pricing reflects the dynamic of supply and demand in real time and far more efficiently than the Energy sector which is comprised of individual companies. The ramifications of the cratering in crude, impacts energy companies with a degree of lag. Crude for example has lost nearly 70% since the selloff began. Energy companies on the other hand have lost significantly less though still trading at multi-year lows. It will take many months for the survivors to be identified in the energy sector. Rest assured many oil/gas names will either go under, merge or both in the coming quarters – it is only a question of time.

That fear of wide spread default in the energy space is not only affecting oil/gas companies. It is also the principal driver for the down draft in financials thought to have exposure to the ongoing oil glut. This theme has effectively turned what should have been a positive post-FOMC Announcement narrative for financials into a route. I think it is important to point out that the selling in financials has been fairly indiscriminate. Financials that have little exposure to the energy space directly are being sold simply because there is an ill informed belief that all financials are in for some disappointing earnings at least in part as a result of the perceived exposure to oil/gas.

UPDATE 12/24: My further commentary on the impact of crude on the financials and the the road ahead on Reuters.

Today’s Economic Calendar will be dominated by the 8:30 AM EST release of GDP (consensus +2.0%) and housing. FHFA comes out at 9:00 AM EST and Existing Home Sales are out at 10:00 AM EST. Crude and retail will continue to ride roughshod over the broader near term narrative for equities.

flickr photo: Alan Cleaver