Stocks opened higher this morning (Dow +58 pts; SPX +.4%). Energy is the best performing sector in early trading; the only sector in the red is telecom. The VIX Index is back down to 13.5; VIX December futures are trading at 14.8. So volatility is expected to be low this month. Commodities are mostly lower again. Copper is down more than 16% this year. WTI crude bounced yesterday but is back down to $67.50/barrel. It’s interesting that most oil exploration and drilling stocks are higher on the day. Traders are looking for any sign that the group is oversold and might rebound. Bonds are sharply lower today as yields climb. The 5- and 10-year Treasury yields are up to 1.58% and 2.28%, respectively.
China’s stock markets are up sharply today on the expectation for further monetary stimulus measures. And believe it or not, the Shanghai Index is up 31% this year despite weaker economic growth. It is true that Chinese stock indexes do not correlate very well with the country’s economy.
Citigroup says oil prices have probably bottomed. Their call is based on technicals, comparing this selloff to previous ones. Indeed, the crude oil curve is positively sloped, meaning that traders believe prices will move up over the long term. In the meantime, CNBC reports oil price declines are beginning to have a huge effect around the world. In order to achieve a balanced government budget, Venezuela needs oil at $118/barrel; Russia needs $102/barrel. Persistently low oil prices are going to wreak havoc on these economies. Today, the Russian government acknowledged it is likely headed into recession.
CNBC contributor and NYSE trader Art Cashin says his US market outlook is very positive. We’re “going into an absolutely promising period.” Years ending in 5 typically have an upside bias. And the third year of a president’s second term is usually positive. Of course, we know that market generally does well when we have a Republican-controlled congress and a Democratic president. Finally, Art says investor cash on the sidelines amounts to maybe $11 trillion. So if investors decide to embrace the rally, there could be a real upside bias to stocks into 2015.
We got some good news out of the manufacturing sector this morning. GE, Toyota, Honda and Fiat Chrysler said November auto sales exceeded forecasts. Ford posted a decline in sales, but even that was better than expected. The US auto industry is on pace to sell over 17 million units this year, the most since 2003. Separately, ISM’s New York Purchasing Managers Index rose unexpectedly to 62.4 in November from 54.8 in October. Remember, any reading over 50.0 indicates expansion.
CNBC reports about 1,000 hedge funds will close this year due to persistently weak performance. The record number of closures (1,471) was set back in 2008 during the height of the Great Recession. Hedge funds are having a difficult time outperforming benchmarks, and as a group have posted mid-single digit returns this year. It also doesn’t help that the SEC has stepped up investigations exposing insider trading and fraud.
MikesMarketUpdate 