Daily Market Update – December 9, 2014 (Close)
Yesterday was not a terribly good way to begin the week as it looks as if continuing weakness in oil started to drag lots of things down in an indiscriminate way.
There’s some speculation that the weakness in oil has started creating margin calls and causing people to sell some of the year’s winners in order to meet those calls.
Who knows, but if so, that just demonstrates another risk associated with margin, especially as taxes may be related.
If I had to choose between selling a big winner, even if subject to short term capital gains, I would much rather try to do it in a little more than 3 weeks and get an additional year to have to pay taxes than to incur the liability now.
Today was likely to be another day of focusing on oil and retail sales. With the oil discussion being so paramount, retail has actually taken a back seat from its usual prominence heading into the final weeks of the year.
This morning, at least, there seemed to be a little respite to the decline in oil futures, but the US Futures were trading moderately lower, and then they plunged for no discernible reason just prior to 8 AM, continuing yesterday’s weakness.
The final close for the day was far better than was seen in the late morning when the DJIA was down over 200 points.
While yesterday so many focused on the weakness seen in Exxon, Chevron and McDonalds as explaining the decline in the DJIA, the decline was so much more broad than that, as there was so much more red than green on the screens.
This morning, before the official bell, it wasn’t looking anywhere near as onerous as yesterday’s colors indicated, with lots more green showing before trading started, even with the sudden early morning drop. Even the oil stocks were showing some small gains, for now, which isn’t too bad considering that the overall market was and then continued pointing much lower.
With a couple of purchases yesterday I wasn’t certain if there would be any more to come for the week, although some of yesterday’s declines really seemed inappropriate.
One of those was Dow Chemical, which was just assigned last week. for example and is getting unduly punished, probably because of its relatively small position in a Kuwaiti oil venture.
The one thing that is certain is that while there is already talk of some of the major oils cutting their dividends to deal with the sudden decrease in cash flow, that’s not too likely to be the case with Dow Chemical and so it would be expected to hold share price better against any continuing onslaught.
Ultimately, it was just too difficult to resist the logic of getting back into Dow Chemical at a price lower than shares were assigned just a couple of days ago.
While the focus today was certain to continue on oil and retail, there may have been a little diversion at 10 AM, when the JOLT Survey was released.
That was a little regarded report until about a month or two ago when Janet Yellen said she paid attention to it, as it represented optimism among those already in the workforce, by virtue of those people willing to take the risk of leaving their jobs for better paying ones. That certainly hasn’t been the case for the previous 5 years, but now as employment is rising, so too may the quality of the jobs being offered.
While people still debate whether lower energy prices are good for the economy, there’s not too much doubt that more jobs and better paying jobs are good for the economy and ultimately good for retailers and consumer goods.
But instead, we reverted back to not caring about JOLTS today. Maybe the initial shock of seeing the market down so much was enough for one day.
If you’re heavily weighted in energy, as I am, you may not be following the logic, as your personal economy now would much rather see something of a return of energy prices to the kind of levels that would drag share prices higher. I think I can do more shopping and spending if oil prices were higher, although at the moment I’d be happy for some kind of a compromise.
Maybe today will be the start of that equilibrium between price at the pump and price at the NYSE, but it may take much more than a day to have any confidence that is going to be the case.