Wall St. slides on lower crude prices, stock options expiry

23 Dec 2015 | Author: | No comments yet »

MarketsUS stocks slide, but little changed for week.

U.S. stocks closed lower on Friday for the second straight day, as concerns, ranging from a decline in crude oil prices to the global response to the Federal Reserve’s interest hike, weighed down the market. “It’s a confluence of all the factors: oil prices continuing to run down, the Chinese trying to counteract the dollar and everyone is digesting, globally, what the Fed’s announcement means for emerging markets and everything else,” said J.J. U.S. stocks suffered the biggest two-day retreat in three months, as investors weighed the impact of the Federal Reserve’s interest-rate increase and the prospects for slowing global growth.The Federal Reserve finally raised interest rates, but you wouldn’t be able to tell that much happened if you just look at the week-to-date change of US stocks.

The Dow Jones industrial average .DJI closed down 367.25 points, or 2.1 percent, to 17,128.55, the S&P 500 .SPX had lost 36.34 points, or 1.78 percent, to 2,005.55 and the Nasdaq Composite .IXIC had dropped 79.47 points, or 1.59 percent, to 4,923.08. Volatility was slightly higher than usual on account of “quadruple witching” – the expiry of options on stocks and indexes as well as futures on indexes and single stocks. Part of this is the heightened volume that comes with the “quadruple witching” today, a day when four different futures and options contracts expire. While higher volume and a pick-up in volatility are not unusual on options expiration day, Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin, Texas, said Friday’s sell-off appeared to be tied more to the Fed’s move and lower oil prices.

More than 12 billion shares changed hands on U.S. exchanges Friday, 71 percent above the three-month average and the most since the height of the summer selloff on Aug. 24. “We had a big rally off of the Fed,” said Troy Gayeski, senior portfolio manager at SkyBridge Capital. “But if equities continue to slide, sentiment may have already flipped to thinking there’s not going to be a Santa Claus rally, let’s de-risk and become more conservative.” Stocks remained under pressure for a second day following the Fed’s first rate increase in nearly a decade. Still, these witching days don’t automatically mean selloffs, just higher volume. “Watch S&P 2015/2018,” UBS’s Art Cashin wrote just after noon. “If they break that, 2000 could be challenged with a retest of 1993 (last Friday) again.” The market slipped under the 2015-2018 range a bit after 3 p.m., and that opened a trap door.

Declining issues outnumbered advancing ones on the NYSE by 2,013 to 1,074, for a 1.87-to-1 ratio on the downside; on the Nasdaq, 1,813 issues fell and 1,084 advanced for a 1.67-to-1 ratio favoring decliners. With the central bank withdrawing stimulus, even if it’s promised to do so at a gradual pace, investors are growing cautious as earnings and ultimately the economy are left to drive stock prices. Volume on the U.S. exchanges was 11.85 billion shares, compared to 7.24 billion average for the full session over the last 20 trading days, according to Thomson Reuters data. The index has fallen 3.6 percent in December, bucking the historical seasonal trend of gains, and headed for the biggest annual drop since the 2008 financial crisis.

After that, the market quickly fell through several technical levels, something she colorfully described as the assets getting thrown “over the side” of the boat. While this week’s Fed rate decision removed a measure of uncertainty on financial markets and added to optimism that the world’s largest economy is on firm footing, it did little to allay concern that global growth remains vulnerable to a slowdown in China and a related rout in commodities.

Following the central bank’s move on Wednesday, Chair Janet Yellen repeatedly stressed her confidence in the health of the economy and played down concerns that it would be knocked off course by weakness overseas or by the recent tumult in the high-yield bond market. “The Fed hiked, the world didn’t end,” said Ross Yarrow, director of U.S. equities at Robert W. There’s no huge reason for people to be putting money to work between now and the end of the year.” The Chicago Board Options Exchange Volatility Index rose 9.3 percent Friday to 20.70. Citigroup Inc. and Regions Financial Corp. decreased more than 3 percent. “We initially saw financials do well on the (Fed) news, but they subsequently sold off,” said Bernie Williams, chief investment officer at San Antonio-based USAA Federal Savings Bank. “There’s concern on the financials’ exposure to energy and their loans, especially the regional banks.” Consumer staples shares in the benchmark also had their biggest back-to-back slide since August. Among consumer discretionary companies, CarMax Inc. tumbled 6.4 percent, the most in a year, after the used-car dealer’s quarterly results missed estimates. Disney dropped 3.8 percent, the steepest since Aug. 20, after BTIG Research analyst Rich Greenfield cut his rating on the stock Friday to sell, saying “Star Wars” profits won’t offset larger troubles Disney faces from shrinking subscribers at its ESPN sports network.

Offshore rig owners are suffering from the double whammy of a glut of new vessels entering the market at the same time as falling crude prices force oil explorers to cut spending. Analysts warned that cheap oil and rising interest rates could clip near-term aircraft sales and hamper the strong cash generation that has drawn investors to the stock.

The world’s biggest cruise operator rose after saying advance bookings for the first three quarters of 2016 are well ahead of the previous year at slightly higher prices.

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