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Sliding Oil, Budget Hang Up Spells Bad Chemistry on Street Despite Mega Merger

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December 11, 2015

Stocks headed lower early Friday and were on track for weekly losses, under the influence of weaker oil prices and Washington’s budget wrangling. A downbeat Wall Street gained little traction from confirmation of a $130 billion chemical merger but did slightly pare losses after the latest look at retail spending.

Crude oil closed under $37 a barrel on Thursday and looked headed toward $36 in Friday action, pressured by the same formula of heavy supplies and uncertain demand that has held oil at or near multi-year lows for weeks. Gold was lower and the dollar traded mixed against major rivals. Both Asian and European equities declined on Friday.

Wall Street’s attention is also focused on Washington, where lawmakers are rushing to finalize a $1.1 trillion government-wide spending bill and a sprawling tax package touching all sectors of the economy, then head home for the holidays, the AP and other news outlets report.

Under current law, government funding expires Friday at midnight, when the last short-term spending bill expires. The Senate agreed by voice vote and without debate Thursday to extend that deadline through Wednesday Dec. 16 to allow more time for talks. The House was expected to follow suit Friday.

Select stock sectors could be impacted as Republicans are seeking to lift the oil export ban and roll back various Obama administration regulations; Democrats aim to protect President Barack Obama's environmental rules and enact permanent tax credits for wind, solar and other renewable energy, among other issues.

A street address on the other side of town will next week draw in Federal Reserve policymakers contemplating their first interest rate hike in nearly a decade. That decision’s implication for bond and stock markets leaves some traders marking time in a cautious stance. Early retail sales data could help inform that Fed decision.

Stocks found little immediate boost from a morning report that said U.S. retail sales rose 0.2% in November, less than Wall Street expected, but still the biggest rise in four months. Excluding purchases of autos and gasoline, retail purchases climbed 0.5 percent, also the biggest advance since July. Separately, U.S. producer prices were up 0.3% in November, the biggest gain since June.

SPX stock chart

FIGURE 1: TOUGH CHURN?

The S&P 500 (SPX), charted on the thinkorswim® platform, churns deeper below the psychologically significant 2100 line, so far this week reflecting the tug of weaker energy and materials shares. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Merger Chemistry? DuPont & Co. (DD) fell in pre-market trade Friday, while Dow Chemical (DOW) gained, after both confirmed they were combining in a merger of equals, creating a company with a combined market capitalization of $130 billion. The new company, to be named DowDuPont, will then pursue a separation into three independent publicly-traded companies, focusing on agriculture, material science and specialty products. The news, typically bullish for the broader market, was having only limited effect so far.

GoPro in Focus. GoPro (GPRO) fell early Friday, pulling back from a nearly 12% jump on Thursday following speculation the wearable-camera company could be an acquisition target for Apple (AAPL).

Adobe Beats. Shares of Adobe Systems (ADBE) could be active on Friday after the software company beat Wall Street expectations with better-than-expected quarterly results issued late Thursday.

Good Trading,

JJ

@TDAJJKinahan

Join Us to Figure Out the Fed

TD Ameritrade’s JJ Kinahan and Craig Laffman will huddle pre-Fed decision on Wednesday, December 16, at 9 a.m. Eastern. They’ll discuss the potential impact of rising rates. 

JJ Kinahan

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

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