Morning Commentary
The market took it on the chin yesterday, 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.
Today’s Session
We’ve been following the bouncing ball that is crude oil these days. Crude reversed from overnight pressure from the latest read on mounting inventories. There’s some rationalization about the weather distorting gasoline build, but let’s face it, we are swimming in gasoline. Crude through $32.00 would be impressive, but the breakout comes with close above $34.00/$35.00. On the downside, $27.50 must hold.
ADP Jobs Report
ADP is out this morning with 205,000 jobs for last month which is slightly better than the 190,000 consensus. The mix is fine, although small businesses aren’t pumping out the jobs to the degree of the first half of 2015.
We are looking to accumulate slowly in this environment as certain technical test are achieved. The most important thing at the moment is to not force the issue, but pull your head out of the sand.
Comments |
those that vote for Hill want a mommy those that vote for Don want a daddy those that vote for Bern want a Uncle Sawbucks Ken frost on 2/3/2016 9:43:58 AM |
See, there you ALL go again! It's not capitalism Senator Sanders is against. It's Casino Capitalism. It's not sound Investment dividends he's against,(though he thinks they should be taxed like regular income) it's wild crazy speculation that he's against that risk peoples money. It's corporations (corporate welfare) not paying fair share of taxes or pumping monies into campaigns or lobbying to over tilt the advantages of the rich to the working class. We either have a contract with our society or it's survival of the fittest, last man standing mentality. Joe on 2/3/2016 9:56:30 AM |
The Baby Bust generation (under-48) is now a majority voting block. It's time the rest of the country paid a little attention to the challenges that face them or we're all going down the drain. See http://bit.ly/1rhu3NE Dennis Howard on 2/3/2016 10:07:46 AM |
There are two things that I believe can help or hurt economic growth. Government regulations (control) can suppress growth if too numerous, complicated, and restrictive. Taxes can suppress growth if too high and complicated. It's my understanding that Bernie Sanders wants to increase both, so I can't see how his policies can help grow the American economy which should benefit everyone. George E on 2/3/2016 10:28:01 AM |
But, Joe, it IS all about "survival of the fittest". Why should man be any different in this regard??? "Tinkering" in the quest for Utopia always comes back to haunt and is directly responsible for much, much more long term damage to a particular culture. Diamond Dave on 2/3/2016 10:31:39 AM |
sadly, voters love Santa, and don't see the economic destruction that both parties have created through the oppressive tax code and regulations. kev on 2/3/2016 10:33:09 AM |
We have several generations of younger people without good jobs, big debt and many living at home. They are not buying house and furnishing, etc., so our consumer driven economy is limping along and the U6 employment rate along with the labor participation rate tells the story clearly. Socialism will not bring back the vast middle class but, tell that to students and others who have not experienced what it really means to earn and pay your own way. The Siren call for the less affluent is loud and growing. Problem is we can only fleece the "WEALTHY and RICH for a while and then everyone goes down the drain together. Gov't must be reformed to facilitate growth and opportunity. And, for good measure I would reinstitute a universal draft to give these whining entitlement driven youth some indoctrination into serving the Country and a Greater Good with a dose of discipline thrown in. Just saying big changes are needed and soon! Slick talking BO came along and now Progressive HRC and Socialist Bernie are promising more and more stuff that cannot be paid for even if we Tax ourselves into oblivion and fiscal collapse. Garro on 2/3/2016 11:55:51 AM |
Joe, man will always have his games, whether its Wall St, sports, casinos, bulls in the street, chasing lions into caves etc.. Get some years under your belt. You sound like a novice. E.V. Wagoner on 2/3/2016 11:57:25 AM |
All great cultures strangle on the accumulation of red tape, regulations, laws and customs. Through this previous generations chain their descendants with poorly adapted and frankly dysfunctional government. Thomas Jefferson floated the idea of requiring all acts congress to sunset in 20 years. This would go far to circumvent the perpetual tendencies of bureaucracy and limits future mischief by forcing the legislative branch to busy itself with the old instead of inventing new areas of mischief. I used to this to be a dumb idea. I have to admit it is growing on me more and more. scott Manhart on 2/3/2016 12:01:59 PM |
The senator needs to remember that a very significant part of these dividends supports the payment of pensions and the capital value of retirement funds of his fellow citizens and people around the world. Don Selman on 2/3/2016 12:19:45 PM |
JOE: Bernie Sanders = Greece (or worse!) Tom Holcomb on 2/3/2016 12:29:19 PM |
Charles - Glad to see you posted the number of job losses in the oil industry. I told you back in January I had heard it from my oil buddy that it was 150,000, first I had heard of it then. So, it's more! Why isn't this reflected in the employment numbers? Why is no one talking about all the job loss coming? Leelee on 2/3/2016 3:40:12 PM |
The Secretary of State is among those presumed qualified to decide what should be classified - asking us to believe there's anything like naive innocence over the emails is preposterous. The mute button on my TV is worn out from punching it every time she or that president speak on air. Patricia Flynn on 2/3/2016 4:20:07 PM |
When you are young and starting life, you have nothing to protect. Than if you are normal and willing to work, you have at list a house to protect. When you are old and you did not achieved what you wanted, you rebel against the system that so call fell you. But if you are normal, you want to keep what you have and too bad for those that did not play by the rules. Philippe on 2/4/2016 6:25:41 AM |
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