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Stocks Suffer as Oil Market Remains on Slippery Footing

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December 18, 2015

Stocks are stacking up for a wild Friday after continued declines for oil and other commodities smack the equity indexes. Asia wielded its influence as well. Volatility for stock and currency trading there followed an unexpected move by the Bank of Japan to goose economic growth—only the freshest example of the gully between the Federal Reserve’s U.S. interest rate policy and actions at other central banks. Japan’s Nikkei 225 closed down nearly 2%.

The tone was already negative after U.S. stock averages snapped a three-day, Fed-fueled advance on Thursday when crude oil prices fell to their lowest level in nearly seven years. U.S.-traded crude fell below $35 a barrel. Energy and materials sector losses were the most pronounced but losses were largely widespread across the S&P 500 (SPX). The loss essentially erased the ground covered in the previous two sessions (figure 1). It’s reflective of action seen for much of 2015—wide moves in both directions that wash out as a little-changed stock market.

A day earlier, major stock averages and the U.S. dollar gained when Wall Street largely embraced an expected Federal Reserve interest rate increase, a move that ended a historic era of ultra-loose monetary policy.

S&P 500 declines with oil drop

FIGURE 1: WHAT HAPPENED TO POST-FED OPTIMISM?

The S&P 500 (SPX), plotted here on the thinkorswim® platform, has logged wide-range sessions in a volatile trading week. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Bank of Japan’s Urgency? The Bank of Japan surprised many in the financial markets with its move to inject extra stimulus in its economy. The Wall Street Journal notes a sense of urgency with the policy move considering that the public message from officials there had not let on to the need for more aggressive steps.  BOJ Governor Haruhiko Kuroda had maintained that the BOJ’s policies are having their desired effect, and that underlying inflation remains on an upward trajectory, the WSJ reports. So what did they do? Essentially the BOJ  announced supplementary measures for its quantitative easing program, committing to increasing its exposure to longer-term government bonds and domestic stock funds. The yen actually rallied against the dollar overnight.

Car Sales Snapshot. CarMax (KMX) shares fell sharply early Friday after the used car mart missed Street expectations with its fiscal Q3 results. The company said its performance was hurt by disappointing used vehicle sales and higher advertising expenses. Now, that’s showing up in a negative reaction for these shares but does support other data we’ve seen—new car sales have been healthy and improving in recent months.  KMX earned $0.63 per share, up from $0.60 a year earlier but below the Street forecast for $0.68. Revenue rose 4.1% to $3.54 billion, below the Street consensus for $3.61 billion. Same-store used unit sales surprisingly declined 0.8%, not the 1.9% increase predicted in a survey of industry analysts, as a decrease in store traffic was only modestly offset by an improved conversion rate. The stock has shed 14% year to date through Thursday, compared to the S&P 500’s 0.8% dip.

More Potential Share Movers. Some of the early movers on company news include: Darden Restaurants (DRI), gaining after issuing Street-beating earnings; BlackBerry (BBRY) jumps after the competition- challenged smartphone maker topped industry expectations with its quarterly results; Bristol-Myers Squibb (BMY) could draw interest after GlaxoSmithKline (GSK) said it will buy BMY’s HIV drug pipeline.

Good Trading,

JJ

@TDAJJKinahan

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