It is still early in the day for the market, but it appears, so far, there are still plenty of buyers out there. What the remainder of day will bring remains to be seen, but me thinks the strong consumer spending data, coupled with yet another drop in weekly jobless claims, makes for a strong market day, which suggests that the recent bout of selling is nothing more than …
- What can I say, other than the market thinks this is the time to retrace, to rebalance, so, let’s get on with it.
Even if the day turns out to be less than stellar, which it might, the economic reports today spell m-o-m-e-n-t-u-m for the US economy and the market understands this long term.
- … let’s see what tomorrow brings in terms of economic reports. It might well be that much of what we have lost in the last three days gets recaptured if the reports are positive.
True, the market has been falling all over itself this week, and much the breathless media is reporting the root cause of the market drop is the continuing drop in oil prices.
- The U.S. equity benchmark S&P 500 index .SPX had shed 2.4 percent over the past three sessions, its worst run in two months, as tumbling oil prices weighed on the energy .SPNY sector.
No doubt, falling oil prices spell trouble for the oil market, i.e., US producers and other producers who have higher production costs will suffer as the price drops further, but that is just the nature of supply and demand markets.
On the other hand, the jump in retail sales for November and the yet-another-drop in weekly jobless claims speak to a US economy doing better because of the drop in oil prices.
Now, if you ask me (well, even if you don’t), I will trade a suffering oil industry, as well as a suffering Russia, Iran, and Syria, in exchange for a US economy gathering momentum because there are more jobs and more spendable income for the US consumer.
- But crude’s weakness has helped holiday spending, with retail sales data for November beating expectations.
As to the aforementioned countries that suffer from dropping oil prices, I say hallelujah. They are serious troublemakers contributing to the suffering of thousands upon thousands of people and the income they receive from oil pays for all of that suffering. So, maybe if their income from oil drops substantially, maybe their trouble-making capability will drop commensurate with that drop in income.
As to the producers who will suffer from dropping oil prices, well, there will be fallout for those who overplayed their hand in pursuit of more, more, more.
- Borrowing costs for energy companies have skyrocketed in the past six months as West Texas Intermediate crude, the U.S. benchmark, has dropped 44 percent to $60.46 a barrel since reaching this year’s peak of $107.26 in June.
As to the investors who will suffer from dropping oil prices, well, there will be fall out for those who speculated on the price of oil going up.
- The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities [read energy junk bonds] to generate returns, raising concern that risks were being overlooked.
And there you have it. All the crying about oil prices dropping comes from those who are losing money in the process, but for the rest of the world who lives and breathes by their monthly paycheck, the drop in oil prices is like manna from heaven, and, in the end, it is good for the market.
Trade in the day; invest in your life …
