Stocks sagged at the open this morning (Dow -38 pts; SX -.66%). Retailers, industrials and tech are leading the way lower. Utilities and healthcare are hanging onto modest gains. Momentum names like TSLA, TWTR, BABA and FB are getting hit hard. Commodities are mostly lower. WTI crude oil bounced a bit this morning after taking a beating Friday. WTI is currently trading at $67/barrel and Brent crude is at $71. You probably know that OPEC decided not to cut oil production last week. And Bloomberg points out that we haven’t heard any US companies talking about significant production cuts. Bonds are mostly unchanged on the day after rising sharply last week. The 5- and 10-year Treasury yields are sitting at 1.49% and 2.18%, respectively.
Berkshire Hathaway agreed to buy a couple of business units from Weatherford Int’l, a large oilfield services company. The deal is valued at about $750mil and focuses on chemicals used in oil and natural gas drilling. The recent drop in oil prices probably enticed Berkshire, which has a $60bil pile of cash looking for investments. My guess is that the longer oil prices stay down, the more M&A we’ll see in the space. Oil drillers and service providers are going to be forced to cut operating costs.
The Nat’l Retail Federation said retail sales over the Thanksgiving weekend fell 11% y/y, the second consecutive annual decline in sales. This, however, may not mean anything. Many retailers didn’t wait for Black Friday to begin offering huge discounts, so business was pulled forward this year. More important will be retail sales over the entire November/December timeframe. Generally, about 40% of retailers’ business is done in the last couple of months of the year.
ISM’s Manufacturing Index eased to 58.7 in November from 59.0 in the prior month. Economists, however, were forecasting a larger drop to 58.0. Bloomberg reports this is the second-highest reading since April 2011. The forward-looking new orders component of the index accelerated during the month, and has been very strong of late, despite global economic weakness. Even exports improved quite a bit. ISM’s inflation gauge, meanwhile, declined significantly on falling commodity costs. Overall, Bloomberg reports US factories are struggling to keep up with demand.
By the way, we got PMI data from Europe today. France, Germany and Italy all reported declining business activity. European stocks are poised to close lower as a result. China’s official manufacturing PMI fell to 50.3 this month, shy of expectations. Remember, with most PMI data, 50.0 is the dividing line between expansion and contraction. While manufacturing is only a small part of our economy, it accounts for about 45% of China’s GDP.
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