Fed Rally Quickly Fizzles as Oil Skids Below $35

23 Dec 2015 | Author: | No comments yet »

Dow Jones Industrial Average Drops 253 Points as Oil Breaks $35 per Barrel.

The Dow Jones Industrial Average dropped 252 points, or 1.42% to 17496. Federal Reserve Chair Janet Yellen’s Washington news conference is shown on a television screen on the floor of the New York Stock Exchange, Wednesday, Dec. 16, 2015. The Fed’s move to lift its key rate by a quarter-point to a range of 0.25 percent to 0.5 percent ends an extraordinary seven-year period of near-zero rates that began at the depths of the 2008 financial crisis. (AP Photo/Richard Drew)(Photo: AP) Wall Street’s euphoria over the Federal Reserve proved short-lived as stocks sold off sharply Thursday, led by the energy sector after oil prices fell below $35 a barrel.

The drop more than wiped out the gains from Wednesday, when the Dow gained 224 points after the Fed hiked interest rates for the first time in nearly 10 years but promised that future rate increases would come at a “gradual” pace. Although stocks rallied briefly at the opening bell and looked ready to build on a three-day winning streak, the gains quickly evaporated Broader market gauges also dropped, with the Standard & Poor’s 500 down 1.5% and the technology-packed Nasdaq composite down 1.4%.

With the Fed now out of the way until next year — and the impact of the rate increase still largely unknown in other corners of global markets — markets will go back to focusing on business fundamentals like holiday retail sales, job growth, oil prices and other data points that provide insight into the profit potential of U.S. companies. Wednesday, Wall Street reacted positively to the Fed’s message that the first rate hike since 2006 is a sign of economic strength and that weaning the nation off of cheap money won’t derail the economic recovery. Shkreli is accused of running a shell game at one of his former firms that a U.S. attorney compared to a “Ponzi scheme.” Prosecutors allege he engaged in widespread fraud between October 2009 and March 2014.

Shares of KaloBios Pharmaceuticals Inc. (Nasdaq: KBIO), a former penny stock that had soared in recent weeks after news of Shkreli’s investment, fell more than 50% on the news of his arrest. Economists at Goldman Sachs, in a note, said the Fed’s policy changes held very few surprises for Wall Street, and that’s partially why a blockbuster rally is unexpected in the days following the announcement. “The market reaction was limited, suggesting the policy and statement together were reasonably close to investor expectations.

For more news on what has happened to other hedge fund managers in 2015, be sure to read our recap of recent events involving Pershing Square Capital manager Bill Ackman. Post-meeting rates in the overnight indexed swap market suggest investors expect the effective funds rate to settle at around 0.34% after liftoff, up from 0.15% in recent days,” the note said. But he added that risks in coming quarters are possible, citing continued weakness in commodities and more pressure from the strength of the U.S. dollar. “Defining ‘gradual’ and divining how the Fed will implement a gradual rate increase will become the new parlor game for financial markets,” Lee wrote in a research report. As Bryce Doty, senior portfolio manager at Sit Investment Associates, put it: The markets took the form of Star Wars star Yoda, telling the central bank, “Do or do not, there is no try.” “Markets were relieved to see [the rate hike] because it removed uncertainty,” he explained. “But the move that was ‘priced in’ was only until the moment of the event. And there are still skeptics on Wall Street that warn that there will be trouble in markets despite the initial positive reaction to the Fed rate hike and so-called “dovish” message. “Investors should prepare for a very difficult period in financial markets, but should avoid knee jerk reactions,” warns Benjamin Alderson, senior area manager of deVere USA, an independent financial advisory firm. “The Fed is removing a key support for all financial markets by raising interest rates, despite worrying evidence of slower U.S. economic growth on the horizon.” European shares were higher, as were Asian stocks.

There isn’t a 100% consensus about what will happen next.” Though the first hike has come and gone, economic data will continue to play an important role in the Fed’s decision-making process moving forward as it expects to make three to four more increases before the end of next year. “I’m surprised that the markets are doing so well considering the Fed expects at least four more hikes in 2016,” Doty said. “I wonder if people just don’t believe that. On Thursday, the Philadelphia Federal Reserve’s gauge of manufacturing activity for the mid-Atlantic region dropped solidly back into contraction territory as it tumbled to -5.9 from 1.9 the month prior. Expectations were for 275,000. “In light of the firming of job growth since the October meeting, the [policy] statement significantly upgraded its assessment of labor market developments.

It now notes ‘ongoing job gains’ and ‘declining unemployment,’ and says that underutilization of labor resources has diminished ‘appreciably,’” Goldman’s note continued. The event – which happens four times a year – occurs during the expiration of many different stock index futures, stock options, stock index options, and single stock futures. Companies set to report quarterly earnings tomorrow include BlackBerry Ltd. (Nasdaq: BBRY), Carnival Corp. (NYSE: CCL), Darden Restaurants Inc. (NYSE: DRI), and CarMax Inc. (NYSE: KMX). Stocks to Watch No. 2, GIS: Shares of General Mills Inc. (NYSE: GIS) were down 3.3% after the company missed second-quarter bottom line revenue expectations.

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