Stocks looked at risk to repeat Monday’s tough start, based on early indicators that centered on oil volatility and another potential warning sign from China.
The beaten-down energy and materials stock sectors fell again on Monday as crude traded at a nearly six-year low, weighing on broad stock averages (figure 1). A mild, brief oil price bounce did emerge early Tuesday but wasn’t necessarily a sign of changing fortunes in the crude-trading space. Crude prices and energy stocks have shown little relief in the wake of the OPEC decision to maintain current oil production levels of about 31.5 million barrels per day. OPEC’s steady target comes with already high global stockpiles. To start the week, U.S.-traded crude oil futures fell below the $37 per barrel mark and some especially bearish economists think $20 oil is not out of the question.
With the market’s attention fixed on oil, add in disappointing data overnight from China. A report showed exports there fell for a fifth straight month in November. China's General Administration of Customs reported that exports fell 6.8% in November in dollar terms from a year earlier, compared with a decline of 6.9% in October. This compared with a median forecast of 5.3% in a survey of 14 economists by The Wall Street Journal. The news sent broader Asian and European markets lower.
Commodities, currency, and global growth concerns color the backdrop for a Federal Reserve that next meets on December 15 and 16. The Fed is widely expected by Wall Street to raise interest rates for the first time in nearly a decade. Speculation may have to simmer in coming days as the Fed now enters a blackout period prohibiting commentary.
Mixed News in Toll Bros. Report. High-end home builder Toll Brothers (TOL) on Tuesday missed Street expectations with its fiscal Q4 results, but the anecdotal messaging from the report was actually more upbeat than the numbers let on. "The housing market continues on a pace of steady growth and we are well-positioned to take advantage of this growth," CEO Douglas Yearley said in a news release. Toll said homeowner equity is approaching prerecession levels, which could lead to more customers buying upgraded homes. In Q4, Toll's profit grew to $147.2 million, $0.80 a share, from $131.5 million, or $0.71 a share, a year earlier. Revenue rose 6.4% to $1.44 billion. Analysts polled by Thomson Reuters had forecast 83 cents a share in earnings on $1.43 billion in revenue.
CMG: Can’t Shake this Bug. Chipotle Mexican Grill (CMG) dropped sharply in pre-market trading, continuing a string of losses that follow reports of dozens of cases of E. coli poisoning in several states linked to the burrito chain. News hit Monday charging that several students at Boston College may have gotten sick from eating at the restaurant.
Deal News: Peppy Trade for Pep Boys? Pep Boys-Manny Moe & Jack (PBY) was a much-buzzed-about stock early Tuesday after Icahn Enterprises late Monday offered to buy the tire maker for $15.50 a share in cash. Meanwhile, Staples (SPLS) and Office Depot (ODP) could be active in Tuesday’s trade after the companies late Monday said they would fight the U.S. Federal Trade Commission’s decision to block Staples’s acquisition of Office Depot on antitrust grounds.
Join Us in Figuring Out the Fed
TD Ameritrade’s JJ Kinahan and Craig Laffman will huddle pre-Fed on Wednesday, December 16, at 9 a.m. Eastern, to discuss the potential impact of rising rates.