Stocks sold off sharply as crude oil fell to a new seven-year low to close out the week before the Federal Reserve’s crucial interest-rate decision.
First, the scoreboard:
- Dow: 17,252.69, -322.06, (-1.83%)
- S&P 500: 2,011.51, -40.72, (-1.98%)
- Nasdaq: 4,937.08, -108.09, (-2.14%)
And now, Friday’s top stories:
- It wasn’t a great week for stocks, as the major indexes each shed more than 3%, and the Nasdaq, 4%. Stocks closed higher only on Thursday. With the close in the red today, the S&P 500 has not had a back-to-back gain for nearly a month, its longest such streak since 1970, according to portfolio manager Ryan Detrick. The Chicago Board of Exchange’s Volatility Index, known as the VIX, spiked to nearly 25 on Friday, and had its largest weekly gain since the sell-off in August.
- The day started with big M&A news that DuPont and Dow Chemical agreed to a merger of equals that would create a $130 billion chemicals giant called DowDuPont. The combined company would then split into three units focused on agriculture, specialty products, and materials, through tax-free spin-offs. The companies described the deal as a “highly synergistic transaction” that would save them $3 billion; some of those savings could be realised by firing some of the 112,000 workers both companies employ worldwide.
- Crude oil crashed to a new seven-year low. In New York, West Texas Intermediate crude oil futures dropped to as low as $35.39 per barrel. Brent crude, the international benchmark of oil prices, also dropped to a nearly seven-year low. Oil prices have been sliding since last Friday, when OPEC raised its output ceiling. On Thursday, OPEC said it pumped the most oil in three years last month. And on Friday, the International Energy Agency, a global watchdog, said in its monthly report that we’ll still witness a supply glut in 2016.
- With all this happening a few days before an expected interest-rate hike from the Federal Reserve next Wednesday, we know that investors have been preparing for what could be a regime change in markets by pouring into cash. Bank of America Merrill Lynch’s latest update on investor flows showed that money-market funds, an alternative to cash, have seen $212 billion in inflows, with $48 billion coming in within the last four months.
- Third Avenue Management, a $788 million mutual fund, told its clients that they would not be able to redeem money from a bond fund due to, among other things, “a general reduction of liquidity”. This was another distressing sign in the corporate-bond space, as the debt head for their first annual loss since 2008.
- Meanwhile, Carl Icahn sounded another alarm on high-yield bonds. The activist investor told CNBC that amid a dearth of liquidity in junk-bond funds, the high-yield market is “just a dynamite that sooner or later will blow up.”
- In economic data, retail sales rose 0.2% in November, the biggest increase since June, though a little less than expected. Core retail sales, which exclude volatile food and vehicle costs, rose 0.4%. Four out of 13 major spending categories declined in a report which, on balance, showed robust consumer spending at the start of the holiday season.
- Producer prices rose more than expected last month, signalling that inflation may be picking up. Prices for final demand climbed 0.3% over last month and 0.5% on a “core” basis, which excludes the more volatile cost of food and gas. Compared to last year, prices fell 1.1%, less than expected.
- A preliminary reading of the University of Michigan’s consumer confidence index rose to 91.8, a four-month high. According to the report, consumers were optimistic about their buying plans and personal finances, and weighed down by the economy’s prospects in 2016.
- The US oil rig count fell by 21 to 524 this week, the most in two months. Data from driller Baker Hughes showed that the gas rig count fell 7 to 185, and so the total rig count was down 28 to 709.
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