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Risk of Greek Tragedy, Oil Slick Reach U.S. Markets

December 30, 2014

Red screens! We’d gotten pretty used to the green glow in recent sessions but early indications show at least a modest pullback for major averages today. Still, it looks like year-end moves will barely dent what are shaping up to be solid yearly gains across stock benchmarks. As of today, the Dow Jones Industrial Average (DJIA) is tracking a nearly 9% yearly gain, with the S&P 500 (SPX) eyeing a 13% gain, and the tech-concentrated Nasdaq Composite (COMP) nearing a 15% advance for 2014. Yes, global market stirrings have hit U.S. sentiment today, but it could simply be an excuse for the Street to catch its breath in this holiday-shortened week.

Tiny Globe. Today’s sogginess follows stock weakness in Europe where the euro traded at a more than two-year low then stabilized against the U.S. dollar after snap elections in Greece stirred talk of the “Grexit” — Greece leaving the euro-zone. Asian markets slumped, too. Japan stocks found little traction even amid presumably pro-market news: the Japanese coalition government agreed to a tax reform that will cut the country’s corporate tax rate in an effort to spur economic growth there.

Oil’s Taint. Energy stock weakness is also tugging on the broader market. Crude futures prices are now trading at half their 2014 high of $107.26 a barrel scored in June. Here’s a good example of the reach of volatile energy prices: a company called Civeo Corp. (CVEO) is tumbling early today. The company provides accommodation for energy workers and it warned late Monday of slashed revenue because energy companies are tightening the belt, especially on capital-equipment spending. All I’m saying is, it’s a big industry with a big reach. Now, it’s also true that weaker energy prices do push down gas pump prices. That can cut gas station receipts, but historically boosts overall consumer confidence. Let’s see later today.

Feeling Confident Are We? The latest installment measuring consumer moods is due for release at 10 Eastern today. Should upbeat sentiment translate into increased retail spending, overall GDP growth tends to benefit greatly. Retail spending makes up more than two-thirds of GDP. Expectations are high that consumer confidence improved in December due to plunging gasoline prices, improved job creation and, yes, stock-market performance. Economists polled by MarketWatch predict the consumer-confidence index will rise to 93.8 from 88.7 in November. If so, that leaves the gauge a whisker from the post-recession peak of 94.1 (see chart below). The latest University of Michigan/Thomson Reuters consumer-sentiment index, released on December 23, posted its strongest level since January 2007.

Good trading,

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