Stocks got crushed for the second straight day after the Federal Reserve raised interest rates on Wednesday for the first time in nine years.
Since hitting a high of around 2,075 after the Fed’s decision on Wednesday, the S&P 500 has fallen about 70 points while Dow has lost about 530 points from its high.
First, the scoreboard:
- Dow: 17,125, -370, (-2.1%)
- S&P 500: 2,005, -36, (-1.8%)
- Nasdaq: 4,923, -79, (-1.6%)
And now, the top stories on Friday:
- So it looks like investors weren’t that crazy about the Federal Reserve’s latest rate hike. On Friday stocks got slammed and closed near their lows for the second straight day as all of the major averages ended up lower for the week following a furious post-Fed rally on Wednesday. Friday also marked a “quadruple witching” event in which stock options, stock futures, index options, and index futures all expired on the same day. This led to one of the highest-volume days of the year with a particularly volatile final hour of trading. In what was likely the last day of fully-staffed desks until 2016, it was simply an ugly day in the markets.
- And so for those of you looking at Friday’s price action and wanting to get bearish, Henry Blodget has his latest warning out! The gist of Henry’s piece is that it isn’t the magnitude of the Federal Reserve’s rate hike that matters so much as the direction. And given that rates are now going up instead of going down (or at least, staying flat), this is generally bearish for stocks as the monetary screws get tightened, even if ever so slightly. Conversely, Fundstrat’s Tom Lee, perhaps the firmest bull on Wall Street, put a chart in his year-ahead note to clients this week arguing that the current bull market is in tact because secular bull markets — which Lee believes we’re in the midst of — typically last 20-25 years. Right now is year 6. Here’s the chart:
- Friday was the second day of the Fed’s reverse repo operations with the new 0.25% floor in place following Wednesday’s policy change. The amount of Treasuries repo’d — or lent out overnight in exchange for cash — totaled $143 billion, up from $105 billion on Thursday. In an appearance on Bloomberg Radio on Friday, Bloomberg News’ Matt Boesler explained that while the current amount of repos being carried out is more or less what the New York Fed’s desk had seen while ZIRP was in place, this amount is expected to rise as investors see marginally higher rates reflected in money market funds, making these more attractive vehicles than short-term Treasury bills or cash to park their money. Boesler said reverse repo operations could climb near $1 trillion daily in the coming months, with the Fed saying in a statement on Wednesday it has upwards of $2 trillion available for these operations.
- Crude oil fell again on Friday because that’s what crude oil does: fall. West Texas Intermediate crude futures were back below $35 on Friday, closing in on a fresh post-crisis low. And with the continued decline in oil prices the Canadian dollar — affectionately known as the loonie — continues to make new lows against its southern neighbour, hitting 1.40 against the US dollar for the first time since 2004 on Friday.
Speaking of oil, short-seller Jim Chanos had some very interesting commentary on CNBC late Thursday related to OPEC. Right now, the basic thesis accepted in the market is that OPEC — the 12-member oil cartel that is led by Saudi Arabia — is continuing to flood the market with oil to protect its market share. OPEC’s member have state-sponsored oil operations, and so while government deficits are not pleasant for these economies or their citizens, these are not corporates dealing with private-market leverage. There’s always, you’d think, the IMF.
But so Chanos’ argument in favour of OPEC continuing to pump crude isn’t related to balancing government budgets or squeezing out smaller US shale producers but simply about getting oil out of the ground while it has any value at all. Chanos expects that solar and alternative forms of energy will eventually go mainstream — Chanos is publicly short shares of solar company SolarCity, however, though we understand this is more of an accounting thing — rendering oil simply less in demand and, by extension, less valuable. Throughout the oil crash you’ll hear, from time to time, people chide the Business Insider headline writers about “OIL IS CRASHING” because, well, what’s it going to do, go to zero? Chanos, it seems, isn’t not saying that.
- The latest Baker Hughes rig count, notably, indicated that the number of US oil rigs in use this week rose by 17 to 541, the first jump in five weeks. Of course the rig count is down precipitously from the October 2014 high of 1,609 when WTI prices were near $95 a barrel.
- “Star Wars: The Force Awakens” came out on Thursday night and analysts at Nomura saw the movie. They like it. And now, they think this could end up being the biggest movie of all time. This is an all-time great channel check.
- And because Amazon is never not looking more and more like a company that wants to take over every part of its distribution cycle, a report by The Seattle Times late Thursday that said the company is looking at leasing 20 cargo planes from its Seattle neighbours over at Boeing is perhaps the most interesting business news of the week. Amazon is known as an online retailer. But now, much of its profit is coming from a cloud services business that makes enterprise stalwarts like IBM and HP jealous is not nervous though maybe both. And now FedEx and UPS look to be the next targets. Will we see the next-generation of online retailers use Amazon’s logistics network to ship toilet paper? Who knows, but the reality is that Amazon’s most interesting moves are in things like shipping and delivery efficiency, which are inherently not interesting. The more mature the internet economy gets, the more and more it resembles the real one.
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