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Market Update

Stocks Track Oil Mostly Lower; Big-Name Chemical Deal News Helps DJIA

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December 9, 2015

Much of the broader stock market was on track to log a third straight down day in Wednesday’s session, reflecting ongoing sensitivity to weaker oil and a broader commodities tug. However, deal buzz helped the Dow Jones Industrial Average ($DJI) find traction.

Crude actually drew mild relief from the selling early Wednesday, helped as the dollar pulled back. Still, the underlying fundamentals were said to be little changed, according to industry analysts. New York-traded crude remains near $38 a barrel, as does London-traded Brent, both held below $40 as demand uncertainty mixes with hefty global supplies. Related energy and materials sector weakness has been a chief driver of lower S&P 500 (SPX) trading over recent sessions (figure 1).

As for company news, Dow Chemical (DOW) and DuPont Co. (DD) are reportedly in advanced talks to merge, The Wall Street Journal says. It’s a potential late development in a year already known to be the strongest on record for takeovers.

The chemical giants—each of which has a market capitalization of about $60 billion—could announce a merger in coming days, people familiar with the matter told the WSJ. The tie-up would be followed by a three-way breakup of the combined company, the report said. Companies have inked some $4.35 trillion in takeovers in 2015, in recent days eclipsing 2007 as the top year on record for deals, according to Dealogic.

In general, Wall Street is showing a lack of momentum heading into the Federal Reserve interest rate decision next week. As such, the major averages could continue to test lower levels, while bulls are likely simply in search of some stability in the near term, because the focus returns to the interest rate picture.

SPX stock chart

FIGURE 1: NEW TESTS?

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.

Tricky Pose for LULU? Lululemon Athletica (LULU) fell in early trading after the yoga apparel maker reported a 12% decline in quarterly profit and lowered the top end of its yearly sales forecast. Lululemon now expects fiscal 2015 sales of $2.025 billion to $2.040 billion. In September, the top end of its sales range was $2.055 billion.

COST: Slower Growth in Membership Fees. Costco Wholesale (COST) shares are lower after the warehouse retailer late Tuesday reported a Street-surprising 3.2% decrease in Q1 earnings. In the latest period, membership fees—largely viewed as a key metric for this company—rose 1.9% to $593 million, its slowest year-over-year growth in years. The company was due to comment again later today.

YHOO: Suspends Spinoff. Yahoo (YHOO) rose in early action after the search and content firm confirmed reports it was suspending its plan to spin off its stake in Chinese e-commerce giant Alibaba Group (BABA). Details were still emerging.

Good Trading,

JJ

@TDAJJKinahan

economic report calendar

FIGURE 2: ECONOMIC AGENDA.

This week’s U.S. economic report calendar. Source: Briefing.com.

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. 

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