Monday, December 24, 2018
Equity Market Recap
· Major U.S. averages end weak and near the lows! U.S. stocks posted big swings on this abbreviated trading session (US stock markets closed at 1:00 PM EST) as major averages remain on edge following news of the partial government shutdown Friday, rising interest rates, slowing global growth, and uncertainty surrounding U.S.-China trade relations. Adding to the wall of worries was concerns about liquidity. In an initial attempt to assuage market fears, Treasury Secretary Steve Mnuchin comments about liquidity appeared to backfire for markets, as financial stocks fell the most on reports he called senior executives from six of the largest banks to discuss liquidity and lending. While trying to ease markets, it instead raised questions as to why he did that or what the Treasury knows that markets do not. Reports indicated the Trump administration is arranging a phone call on Monday with top U.S. regulators to discuss financial markets as stocks fell again amid concern about slowing growth, the government shutdown and the independence of the Fed, the Treasury Dep’t said.
· Late day however, the Dow Industrial Average fell as much as 600-points, breaking below the 22,000 level while the Nasdaq Comp (after rising late morning to briefly turn positive after falling more than 1.9% earlier), slumped over 2% on the day. Eleven Dow components (more than a 1/3) touched 52-week lows today: AAPL, GS, HD, DWDP, CVX, UTX, IBM, XOM, JPM, MMM, and TRV. Bespoke Investment noted prior to 2018, the S&P 500 had never declined more than 1% on the last trading day before Christmas – though did so today. Also note, U.S. stocks are coming off their worst week since August 2011, as the S&P 500 fell 7.1%, the Dow slid 6.9% and the NASDAQ dropped 8.4%. It was the worst performance for the Dow and NASDAQ since 2008, and the S&P’s worst weekly showing since 2011.
· There was also another attack on the Fed from President Trump this morning saying in a tweet “The only problem our economy has is the Fed. They don’t have a feel for the market.” “The Fed is like a powerful golfer who can’t score because he has no touch – he can’t putt!” Not a merry Christmas for U.S. markets, with major averages closed tomorrow for the holiday.
· Crude oil prices continue to plunge, with WTI crude sliding to new lows of July 2017 and falling below $45 per barrel in another “risk-off” market trading day. Same concerns that are weighing on stocks are also hitting the oil industry such as fears of an economic slowdown internationally that may erode demand as well as concerns about global crude output. No bounce at all for crude after booking a weekly loss of 11.4% last week. Natural gas prices dropped by more than 5% to $3.608 mln Btu’s, well off the $4.898 mln Btu 2018 highs on November 14th. Earlier today, reports noted OPEC and allied oil producers are ready to hold an extraordinary meeting and will do what is needed if the current cut in oil output by 1.2 million barrels per day does not balance the market next year, the United Arab Emirates’ energy minister said on Sunday.
· Gold markets rise back near 6-month highs, helped by a weaker dollar and as market sentiment remains bleak following the stock market rout the last few weeks that has pushed major averages near bear market territory (NASDAQ already there), defined as 20% off the highs. Gold prices traded up $13.70 or 1.1% to settle at $1,217.80 an ounce having logged a weekly increase of about 1.4% last week, helped in large part by its finish at $1,267.90 Thursday. Gold prices are up 5% quarter to date, though they have still lost nearly 4% for the year so far.
· The U.S. dollar finished lower, with the dollar index slipping about -0.4% to around the 96.50 level, dealing with the partially shut down U.S. government and last week’s Federal Reserve interest-raise increase. Given the Christmas holiday, it is likely the government shutdown could continue into the New Year, when the new Congress comes into session. The euro rose to 1.142, while the buck sunk to 220.40 vs. the Japanese yen (also slipping vs. the pound and loonie).
· U.S. Treasury yields fell with 10-year yields holding near eight-month lows as the “risk-off” market mentality continued into the holiday season. Investors remain unsettled by dramatic stock market losses and further U.S. interest rate increases. Note the U.S. bond market will close at 2:00 PM EST and will stay closed on Tuesday, with yields down ahead of the close. The 10-year yield slipped to 2.77% (after last week sliding 11 bps to 2.78%), while the 2-year dropped below 2.62% (around the lowest levels since August) and the 30-yr yield held above 3%. The U.S. Treasury sold $40B in 2-year notes at a yield of 2.619%, well above the 2.60% when/issued priced with the bid-to-cover (demand) weak at 2.31 (lowest since December 2008), down from the 2.65 prior auction level and indirect bidders awarded 45% of the auction.
Sector Movers Today
· Financial stocks took it on the chin, led lower after Treasury Secretary Steve Mnuchin’s attempt the reassure investors appeared to backfire, with his check on six leading banks reminded investors of the financial crisis. The SPDR Financial Select Sector ETF (XLF) has now tumbled over 15% month to date and down around 2-year lows
· Consumer staples, such as food and products were among the biggest market decliners on the day, led by weakness in KMB, CLX, CAG, and CPB; KHC and MDLZ have been short-listed to participate in the second round of CPB’s auction of its international business, people familiar with the matter said
· Utilities and Transports under pressure all day as well; Utility sector falls over 4% for one of its biggest daily declines in several years, while Transports fell over 2% to below the 8,700 level led by broad weakness, with rails falling the most.
· ACOR +8%; after the FDA approves its Parkinson’s disease treatment Inbrija/said it expects the treatment to be available by prescription in the first quarter of 2019
· MB +66%; to be acquired by Vista Equity Partners for a total value of approximately $1.9 billion as MINDBODY shareholders will receive $36.50 in cash per share, representing a 68% premium to the closing price as of December 21, 2018
· NEM +2%; as gold miners among the top performers given the rally in gold and continued rotation into defensive/safe-haven assets
· C -1%; as financials fall and shares drop for a record 14th consecutive trading session
· DVMT -25%; after Class V holders Friday elected the form of consideration they would receive in connection with Dell offer
· RPM -3%; downgraded to underweight at JPMorgan citing valuation saying it was trading at a premium to its peers
· TSLA -6% after Reuters reports this weekend it has slashed prices on its Model 3 electric car in China, as prices of certain Model 3 cars were cut by up to 7.6%