Daily Market Update – December 16, 2014 (Close)
While our stock market has been struggling at a time when logic would have it thriving, except for the energy sector, it has been going lower and lower, as energy prices continue to decline and take all stocks along for the ride.
Thus far, though, the overall decline is about 4%, although depending on an individual portfolio’s exposure to oil and commodities, it can be much more. The declines in the energy sector have been absolutely stunning and sudden and there’s no indication of when they end is at hand.
The longest period of declining energy prices in the last 30 years lasted for about 2 years and took oil prices down by 50%. Interestingly, energy stocks didn’t stay in their funk anywhere near that long, starting their recovery at the 4 month period.
Additionally, the most steep decline was just 6 years ago, going from $133 to $41 over a period of 6 months.
Yesterday, at least for a little while it appeared as if there would be some bounce from the past Friday’s 300+ point loss, but that disappeared, then came back and then disappeared again, ending just a hair shy of another triple digit loss.
That’s volatility and it appeared to be related to a reversal in oil, which had shown some stability early in the session and then went on to rack up even more losses.
But that volatility was just a prelude to that seen in this morning’s early futures trading, as oil was again lower. The difference is that it probably wasn’t what drove the market to change its course.
This morning the very early futures trading was indicating a moderate advance and then suddenly turned around.
It did so as the aftermath of the Bank of Russia’s move to raise its key interest rate by 650 bps overnight, bringing the rate up to 17%, reminiscent of the late 1970s in the US.
What happened afterward, and which spooked the market was another plunge in the Ruble, adding onto yesterday’s large devaluation against the US Dollar. This morning, and it’s a rapidly changing picture, the Ruble was down to an exchange rate approaching 75 per USD, almost reaching 80 at one point, having stabilized yesterday at 60, despite massive Russian intervention.
For those that remember the late 1990s, before the dot com bubble was the Russian Ruble Crisis, which is eerily reminiscent of what may be unfolding right now. During what what also known as “The Russian Flu,” the S&P 500 dropped nearly 20% in less than 2 months, but was fully recovered about 3 months after those lows.
Probably not too coincidentally, the price of oil had dropped by nearly 50% from 1996 to 1998 and the recovery from that “flu” only began as oil prices started climbing.
This morning’s news and events represent another hurdle, but as the morning progressed heading into the opening bell the selling was moderating and hopefully some sanity and even more importantly, buyers, will re-appear and snap up what they believe to be bargains.
I, for one, was grateful as that turned out to be the case, but it was certainly not the theme for the day.
That was reserved for reversals, as the market steadily alternated between large gains and losses.
Going from peak to trough and trough to peak and over again, the DJIA moved about 700 points on the day.
While the Ruble stabilized, oil which had reversed its decline then went on the decline again.
Today, though was a good day not to chase the oil stocks, which went nicely higher and then gave up about 50% of their gains. They probably were propelled higher as most traders realize that historically the stocks move higher before the beaten down commodities do, as in 1998, but today, if just getting into positions, was a day to add to losses by the time the day came to its end.
As a holder of positions, I’m certainly not looking to lighten up on energy stocks, as they are the very definition of what being cyclical is all about.
If only someone could now define the time frame, that would be nice.
Tomorrow will bring the FOMC statement, which was all but forgotten today, as Russia, the Ruble and oil stole all attention.
Hopefully Janet Yellen will be able to put a positive spin on things as she closes out the year with a press conference and can inject some calm into a very uncetain environment.