Daily Market Update – December 11, 2014 (Close)

Yesterday was just an awful day and unlike the previous day, there was no attempt to recover from the depth of the loss at any point.

It was another day that seemed to be directly related to oil, but this time it wasn’t just the quantity of the price, it was also the quality.

While oil fell sharply again that may not have been as important as the suggestion that the declines we’ve been seeing, which most everyone attributed to rising supply, may actually, in part, be due to falling demand from China and elsewhere around the globe.

That puts a new wrinkle on things.

Up until yesterday’s quip by the Saudi Arabian Oil Minister, the conventional thinking had been that the price declines were all the result of increasing supply. That would have meant that declining oil was the result of good things, as opposed to a decreased demand, which is a bad thing.

While there have been so many questions as to whether the decrease in oil pricing would be good for our economy and markets, it would be hard to predict the outcome if the drop had been due to increasing supply, since we have had so little experience with that phenomenon.

But we do have experience with what happens when price drops as a result of decreased demand.

Fortunately, it appears that it’s really not a US problem of increasing demand. It may be a world-wide problem that has bypassed us and will likely be of great benefit to our economy and absent the energy sector, should be a great boost to the bottom lines of businesses.

While it certainly makes Chinese related investments suddenly appear more risky, it may also mean even more focus and investment in US stocks and companies, as we may be the most vibrant and growing economy among the major economies in the world.

That, though, is still a more long term kind of outlook. For now we’re stuck in a whirlpool with oil prices and the energy sector sucking the life out of everything.

While me may gloat a little about some weakness in China the fact is that US businesses are so highly dependent on China and its continued growth. As a nation we are also dependent on their demand for our debt issuances.  A decrease in demand for Treasuries could easily start the upward climb in interest rates.

While it may not be a bad thing to see some moderate increase in rates you would much rather see those increases come from a heating up of the economy and upward pressure on wages and prices, rather than because of decreased demand for debt.

This morning the November Retail Sales report was released and expectations, ex-auto, were for a nice increase in sales. That was the case as the morning’s tiny advance in the pre-op
ening futures really could have used the type of boost that the Retail Sales report ended up providing, especially since there wasn’t much of a reflex bounce from yesterday’s 1.6% decline.

With a couple of rollovers yesterday, there was a little less pressure as the week comes to its close, but there is still some opportunity for some more rollovers and assignments as we head into next week’s close to the monthly cycle.

Just not today, though, but a repeat of today’s trading, even well off its highs for the day would be a nice way to end the week and even more.

I would certainly like to see 2015 get off to a good start and a good end to this week could start to offset the prevalent weakness that oil has spawned