Oil Raining on Christmas

- - Adam Kidan

As oil values have plummeted, stocks have fallen sharply.  The Dow fell 300 points today, a 1.7% decline.  The Dow, S&P 500 and Nasdaq have now all fallen about 3% so far this December.  Crude fell more than 3% to a new seven-year low, dipping below $36.  Investors have little interest in big-energy stocks, with Chevron falling 3% and natural gas companies Southwestern Energy and Chesapeake falling more than 7%.  To add flames to the fire, retail sales for November have proven weaker than expected.

Investors have also been worried by the fact that the Third Avenue Focused Credit Fund announced plans to liquidate late yesterday, and won’t be allowing shareholders to withdraw money from the fund.  This is a further oil plummetingsign of turmoil in the bond market, in particular for high-risk corporate bonds.  Therefore, it’s no surprise that CNNMoney’s Fear & Greed index fell into “Fear” mode today.

While the picture looks bleak, some believe that the Federal Reserve could hold the solution.  If the Fed raises rates in mid-December, which is widely expected, it could cause stocks to pop.  Investors could interpret this move as a sign that it is still confident about the economy and job market, even with concerns over commodity prices and the slowed growth in China.

Investors could be pushing the expected start of the “Santa Claus Rally” earlier and earlier each year, much how retailers put out their Christmas merchandise the day after Halloween.  However, the market tends to surge at the very end of December after traders leave for the holidays, and such liquidity could drive stocks higher, much like what happened last year.  Rapidly plummeting oil prices have led to big losses in the stock market during the first half of the month.  Yet in the final two weeks of 2014 and 2013, stocks took off.

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Adam Kidan