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Crude Reality: Oil Could Continue to Drive Stocks

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January 6, 2015

Maybe not such a Happy New Year. Unless you crave volatility. Monday brought a pretty good dust-up across the indexes as crude-oil prices renewed their drop and the U.S. dollar surged against leading rivals, including driving euro/dollar to under 1.20 and a level that may bring a little lip sweat for execs at U.S. multinationals. Currencies and commodities look to remain in play as traders assess whether markets are experiencing new year consolidation or setting up for the next leg in this market. Broad indexes did start Tuesday's session on firmer footing.

Week’s Just Getting Started. The S&P 500 marked its biggest one-day loss in three months, shaving over 37 points or 1.8%. The Dow Jones Industrial Average (DJIA) erased over 330 points for its steepest down day since October. The tech-concentrated Nasdaq Composite (COMP) followed suit, dropping 1.6%.  Monday’s drop (and a small late-session improvement) could set up the kind of short-term volatility that invites an equal share of profit-takers and bargain-hunters. The hold at SPX 2018 overnight was an important victory for bulls. Larger support lies at 2002. Reality is, the news is back-loaded this week, including release of Federal Reserve meeting minutes on Wednesday and another likely pivotal jobs report on Friday. Keep an eye on the bond market through these big events, demand for the relative “safety” of U.S. markets is pushing down market interest rates (the 10-year yield fell below 2% for the first time in seven months), complicating the Fed’s job and possibly clouding stock demand.

FIGURE 1:

The S&P 500 (SPX) charted on TD Ameritrade’s thinkorswim® platform suffered its biggest one-day loss on Monday in three months. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

 

 

Oil Slides. Crude extended losses on Tuesday, with U.S.-traded futures down nearly 2% and trading just above $49 a barrel. Europe-traded Brent futures shed some 2% near the U.S. stock market open, off their worst levels of the overnight session. With crude now below $50, there may be another reprising of stock valuations.

 Deal Appeal? A little M&A buzz may cheer up broad-market bulls. Retailer Coach (COH) is an early gainer after saying it will buy luxury footwear brand Stuart Weitzman from private equity firm Sycamore Partners in a deal valued at up to $574 million. And, firmly in the speculation category:  Verizon Communications (VZ) has reportedly approached AOL  (AOL) about a possible acquisition or joint venture, Bloomberg is saying citing people with knowledge of the matter.

Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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