Stocks finished the day higher on Monday but not after an eventful day that saw the market get bounced around as junk bonds got hammered for the second straight day.
First, the scoreboard:
- Dow: 17,371, +105, (+0.6%)
- S&P 500: 2,203, +11, (+0.6%)
- Nasdaq: 4,952, +18, (+0.4%)
And now, the top stories on Monday:
- The biggest merger on Monday was news that Newell Rubbermaid, which makes markers and Sharpies, would acquire Jarden Corp., which owns a variety of home goods products including Sunbeam kitchen appliances and Yankee Candle. The deal valued Jarden at $13.2 billion and sent shares of Newell down about 6% while Jarden rallied 2%.
- Just as US investors were rolling into the office West Texas Intermediate crude oil futures hit a new seven-year low, breaking below $35 a barrel for the first time since December 2008 before rallying later in the day to settle closer to $36.
- And as oil prices continue to get hammered so too does high-yield debt, particularly from energy-related companies, with Goldman Sachs warning in a note to clients that 2015 could be the worst year for junk bonds to occur outside of recession. This commentary was just one part of what has been a series of downbeat commentary and general investor anxiety coming emanating from the junk bond space.
- Elsewhere in junk bonds, the CEO of Third Avenue Management, David Barse, left the firm after its Focused Credit Fund told investors it would bar redemptions and begin a liquidation of the distressed credit fund. Headlines from Bloomberg on Monday afternoon said the SEC was on site at Third Avenue’s offices and was “closely” monitoring the situation. In a note to investors following the concerning news out of Third Avenue late last week, K.C. Nelson at Driehaus Capital Management said, “I speculate that this is more of a one-time event, as opposed to an early warning sign of doom to come in the credit markets. While segments of the high yield market have gotten crushed recently, this closure was more of a fund-specific issue.”
- As for what had investors worried over the weekend (perhaps!), late Friday Jeff Gundlach at DoubleLine Capital told Reuters’ Jennifer Ablan that while there’s particular worry about energy-related junk debt, “There’s never just one cockroach” during a credit meltdown. Earlier last week Gundlach made similar comments about how he doesn’t care for analysis that explains away the precipitous decline in junk debt because it is limited to the energy sector.
- Speaking of weekend reading, Barron’s published its annual year-ahead outlook this weekend and couldn’t find any stock market strategists calling for a decline in stocks in 2016. Strategists Barron’s spoke to had a median forecast for the S&P 500 to rise about 10% to 2,220 at the end of next year, just slightly ahead of the 2,205 expected by strategists tracked by Business Insider.
- There is more drama at Yahoo, naturally. Late Sunday, Eric Jackson, a managing director at SpringOwl, published a 99-page presentation arguing that Yahoo needs to replace CEO Marissa Mayer, replace most of the board, and try to turnaround the company under its existing structure. Last week, Yahoo announced that it would halt plans to spin off its holding in Alibaba, the Chinese e-commerce giant, after concerns arose regarding the company’s previously-anticipated tax-free treatment for the plan. As a result, reports began circulating that Yahoo’s “core” (which in this context is a euphemism for “actual”) business was on the block and could prove attractive to strategic media buyers like Verizon or the usual list of private equity buyers. This plan is more or less what was argued by Starboard Value’s Jeff Smith in a letter to the board sent a few weeks ago. And so now Jackson, one of Yahoo’s most vocal shareholders, wants to have his say.
- GoPro crashed on Monday. Shares of the wearable camera maker fell 10% to an all-time low of around $17.20 per share after analysts at Morgan Stanley basically threw in the towel on GoPro, writing in a note that it seems like customers don’t want GoPro’s latest product offering and retailers don’t want to sell it.
- All of this of course is ignoring the elephant in the financial market room: the Federal Reserve. On Tuesday the Fed will kick off its two-day Federal Open Market Committee meeting which will culminate in the 2:00 p.m. ET statement from the FOMC wherein the Fed is widely expected to announce an increase in its benchmark interest rate for the first time in over nine years. Currently, the Fed targets an effective rate inside a range of 0%-0.25% and the expected policy change will bring the floor of this corridor to 0.25% with the ceiling coming in at 0.50%. This should leave the effective rate at around 0.37% — currently the effective Fed Funds rate is around 0.13% — but this is a brave new world for monetary policy almost no matter what happens on Wednesday.