The market took it on the chin on Tuesday, in part to resume the breakdown in the price of crude and all the economic implications. It would be hard to prove; as I watched Bernie Sanders speak in Iowa after narrowly losing to Hillary Clinton, it struck me that this dude isn’t a flash in the pan or a fluke. Sure, he’s peddling an economic ideology that’s never worked for several reasons, including the fact that it ignores man’s innate desire to achieve and in some cases, to overachieve.
I wonder if the market is a little nervous about his 50% showing and huge lead in New Hampshire polls. A Sanders presidency would make Barack Obama look like Thurston Howell III, with his hatred of Wall Street, big oil, and capitalism. However, his goal of dismantling all of the above might be a lot easier when he’s relaying to the American people -not only the big bailout, but also what some might see as extremely selfish actions from oil companies.
Last year, the oil industry laid-off at least 200,000 through October, according to data accumulated by Continental Resources. Those job cuts and massive reductions in production efforts and cap-ex projects are reasonable reactions to the shock of the annihilation of crude prices. Someone like Sanders would argue that it’s unfair because shareholders continue to be rewarded via fat dividends and/or share buyback programs. Recently, big oil has lost big money; it continues to payback shareholders, even if it means borrowing in the case of British Petroleum (BP).
I’m a free-market capitalist, yet I’m concerned about the ability of Republicans running for the White House to be able to articulate why shareholders should get paid when workers are being fired. If Sanders starts to resonate even more, it’s going to be a problem for the stock market. To a certain extent, it will be difficult to quantify; but it will be there, nonetheless.
Market
You know the drill…crude oil began to collapse before the open yesterday, so the markets started the session under pressure and it only got worse from there.
By connecting the oil dots, there’s a lot of scuttlebutt on which banks will take hits from bad loans in the oil patch just as sovereign wealth funds are said to be dumping financials (41% of their holdings) to make up for lost crude oil revenue.
Late in the session, the S&P 500 cut its credit rating on a number of oil companies, including Chevron (CVX). They also left the door open to further rating reductions.
The sell-off got even worse when Esther George, a voting member of the Federal Reserve told Wall Street to stop whining, said the Fed is behind schedule with rate hikes, and shouldn’t worry about wild gyrations and hissy fits of the stock market. I’m paraphrasing.
The good news is maybe cheap gas is having a positive impact, at least for some retail and restaurants. However, Michael Kors (KORS) and Phillips-Van Heusen (PVH) soared yesterday; buyers nibbled at Chipotle Mexican Grill (CMG) and Buffalo Wild Wings (BWLD) as well.
Mattel (MAT), which is retooling Barbie, had its best session in years after posting strong earnings- at least our little girls are getting something out of the cheap oil crisis.
The adults are also buying themselves toys as auto sales popped last month despite harsh weather with Chrysler, the big winner lead by super-hot sales of Jeeps. However, there are questions about mounting inventories and growing incentives.
As for the markets going into today’s session, the Dow Jones Industrial Average, which began rebounding off a double bottom, must now hold 16,000.
Breadth
Market breadth swung back to seriously negative underpinnings, as there wasn’t anything that resembled leadership. There is a meltdown beneath the surface that’s gone beyond fundamentals.
Market Breadth |
NYSE |
NASD |
New 52 week highs |
60 |
17 |
New 52 week lows |
117 |
140 |
Advancers |
20% |
20% |
Decliners |
78% |
77% |
That’s the good news.
That’s the bad news.