Once again the collapse in oil is accompanied with a collapse in stocks. Is this a Coincidence? Absolutely not! But what’s the real message? First, there are big name energy companies that weigh heavily on major equity indices. It’s clear the decline hits the broad market. On that note, however, market breadth has been abysmal, and there’s a general lack of leadership.
This type of volatility, as I’ve been noting, has become par for the course. The inability to breakout triggers sharp selloffs, and then buyers appear. The next such point begins at Dow Jones 17,500 down to 17,477.
The inability to hold leaves the index vulnerable to 16,924.
DJIA
While the technical point is one thing, another is rotation to new leadership from the so-called FANG names.
- FB
- AMZN
- NFLX
- GOOGL
The market would like to shift to broader leadership, and get more names moving higher, as right now, the market has masked a serious amount of carnage beneath the surface.
While oil is rebounding off its lows, but the fallout from commodities is taking place. Morgan Stanley (MS) announced that it is laying off 1200 employees, of which 470 jobs will come from its fixed income, commodities and currencies businesses. Revenues in fixed income and commodities sales and trading have gone from $997 million last year to $583 million currently.
Then we heard from Anglo American, the world’s fifth largest global miner by market value that it intends to lay-off 85,000 employees leaving the workforce at 50,000. The company also plans to suspend its dividend till the end of 2016 and sell more assets to raise approximately $4 billion while it restructures its business. The company will have 3 divisions, Industrial Metals for platinum and base metals, DeBeers for diamonds and Bulk Commodities for coal and iron ore.
Anglo is not alone. The impact of the commodities decline and global slowdown will cause more mining companies to reduce jobs, cost and investments. BHP Billiton (BHP), Vale (Vale), Rio Tinto (RIO), to name a few companies, are all at or near the 52-week lows.
European equity markets were hit hard today from the deep declines in mining stocks and oil prices and were down an average of 1.8%. And adding to the pressure, China reported weak import and export data.
Our equity markets have tried to mount a comeback, but are all still in the red. NASDAQ is the best performing as bio-technology and health care start to gain some steam, but the Dow remains down close to 1%. Breadth is better, but is still a 3 to 1 decline (was 10 to 1 this morning).
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