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Stock Action Remains Pinned to Oil Market’s Whims

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December 29, 2015

Want help with guessing the near-term direction for stocks? Just check in on oil. Stocks look to remain hitched to oil prices for now. As evidence, a retreat for energy shares dinged the broader stock market to start the week—crude prices tumbled more than 3% Monday. Crude volatility has dirtied what historically has been considered a mildly bullish “Santa Claus Rally” during this time of year, although that track record is not perfect.

The oil story works both ways. Relative stability for crude prices overnight is one leading factor behind Tuesday’s early stock market recovery. And both Asian and European stock markets gained as U.S.-traded and London-traded crude futures move up by around 0.5%.

It all makes for rather sluggish action as 2015 grinds to a close. With just three trading days left this year, the S&P 500 (SPX) is off 0.1% year to date (figure 1), the blue-chip Dow Jones Industrial Average ($DJI) is down 1.7% and the largely tech-concentrated NASDAQ Composite (COMP) is up 6.4% so far this year.

SPX stock index

FIGURE 1: HUGGING THE FLAT LINE.

The S&P 500 (SPX), plotted here on the thinkorswim® platform, remains little changed for the year as the final trading days of 2015 wrap up. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

A Little History. According to S&P Capital IQ, since 1928, the S&P 500 has managed an average gain of 1.3% in the last five trading days of the year. Stocks have gained in that five-day stretch 76% of the time since 1928.

Trade Picture’s Drag? After narrowing for two months, the U.S. trade gap widened 3.6% in November to $60.5 billion, its largest deficit since August. According to MarketWatch, many industry economists think the trade situation will be a negative drag on Q4 GDP. The forecast in a MarketWatch survey calls for 2.0% Q4 growth. The U.S. economy increased at a 2% annual pace, according to Q3 GDP data, with trade subtracting 0.26 percentage point from growth in that stretch.

Icahn Wants Pep Boys. Pep Boys (PBY) shares could see a little zip following news late Monday that billionaire investor Carl Icahn has raised his bid for the auto supplies chain to value it at $1 billion.

Good Trading,

JJ

@TDAJJKinahan

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