|Dow||-173.45 to 16,141.74|
|S&P 500||-15.21 to 1,862.49|
|Nasdaq||-11.85 to 4,215.32|
|10-YR Yield||-.116 to 2.09%|
|Gold||+$5.90 to $1,240.20|
|Crude Oil||-$0.16 to $81.68|
Grab your Dramamine, folks — because it was another wild day on Wall Street! The Dow Industrials plunged by more than 450 points earlier in the afternoon, before rallying back to cut those losses down to around minus-170.
I’ve been sharing my thoughts on these crazy day-to-day moves — and I’ll repeat my views there again. If you haven’t taken some profits off the table, cut some losses, and started hedging against downside risk in this uncertain environment, do so. Now.
But today I want to focus on one of the other key markets out there: Energy. Investors are clearly wondering what the heck is going on amid incredible volatility!
Yesterday alone, oil futures plunged by around 5 percent. They briefly fell to within a penny of $80 earlier today, down from around $108 in June. That’s a drop of more than 25 percent in just four months, and it leaves oil prices at their lowest level since the summer of 2012.
Several factors are at play as I see it:
First, global economic growth is slowing. From Europe to Japan to China, GDP growth is either slowing, flat-lining or outright falling.
This is part of the “Anchor Economy” problem I’ve been discussing for months. That’s a key reason why the International Energy Agency just cut its forecast for global oil demand growth in 2015 by 300,000 barrels per day.
Second, the spread of the Ebola virus — including news overnight of an additional health care worker case in the U.S. — is driving fears about travel. SARS and Avian flu led to sharp, regional cuts in air and car travel, which hurt demand for jet fuel and gasoline. The growing concern is that we’ll see another sharp pullback in travel, both here and abroad, if the health care system can’t get ahead of the outbreak.
Third, investors are worried the Saudis are basically launching a price war with the rest of the world. You see, there’s an OPEC meeting in Vienna in late November. Some member countries like Venezuela are pushing for output cuts to stabilize pricing.
|Investors are worried the Saudis are basically launching a price war with the rest of the world.|
But so far, Saudi Arabia has been resisting. The biggest OPEC producer is instead signaling that it will try to compete on price versus U.S. and other global producers — even if doing so hurts its domestic economy and budget outlook.
Add it all up, and you have the recipe for a sharp decline in crude … exactly what we’ve seen. That, in turn, has resulted in investors throwing plenty of babies out with the bath water.
I’m talking about U.S.-based companies that produce, store, transport and process oil, natural gas and natural gas liquids. These companies are capturing market share from overseas competitors and are the key drivers of the American energy renaissance we’ve witnessed over the past few years.
So is it all over? Should we just pack it up, stop searching for bargains in energy, and call it a day? I don’t think so — as long as you know where to invest. I still believe U.S.-focused companies have the advantage here, and that sifting through the rubble could be a wise strategy.
|“Should we stop searching for bargains in energy?”|
At the same time, the global economic concerns I’ve been talking about for several months are only intensifying. That means you should simultaneously be looking to cut your risk and exposure to foreign markets, weaker sectors, and lower-rated stocks here at home. And if crude oil can NOT stabilize soon, it could be yet another factor dragging the global markets down.
So have you made the moves I’ve discussed already? If so, have they helped insulate you in this recent pullback? What do you think will happen with this selloff? Are things going to get even worse? Or are we finally nearing a bottom? Sound off here!
|Our Readers Speak|
Amid the ongoing market turmoil … and the flashing headlines every so often on Ebola … it’s no surprise that the debate about what to do is heating up on the Money and Markets website.
Reader Chuck B. said that central bankers and other politicians are behind many of the problems we’re facing. His take:
“The Fed printed us INTO this mess! Now the buck is almost as much mistrusted as all the other fiat currencies — with good reason. It will soon be replaced for trade with some international ‘basket’ currency. Not that it will have any more behind it than the ‘word’ of politicians, just like the dollar.”
As for the view that the financial stocks could hold the key to this market, Reader Tim Z. said: “So goes XLF, so goes the market. Buy SEF this week if banks get killed.”
If you aren’t aware, XLF is the Financial Select Sector SPDR Fund, a benchmark ETF of banks, brokers, and insurers. SEF is the ProShares Short Financials, the unleveraged, inverse ETF that rises in value when financial stocks fall.
Finally, Reader John R. blamed a whole host of threats to the economy for his bearish position on the markets. His comments: “It’s Ebola and ISIS. World GDP will drop and we have no leader here to stop it. I’m now 80 percent cash. Good luck to the rest of you Bulls!”
Keep those comments coming. It should be clear to everyone that I’ve been shifting to a more cautious investing stance over the past several weeks as well!
|Other Developments of the Day|
Should we be more worried about the influenza virus than Ebola? That’s the opinion of one columnist at the Washington Post. She added that getting a flu shot is one of the most sensible reactions to the Ebola outbreak, since you’re much more likely to get the former than the latter.You gotta love this understated headline from the New York Times: “The Depressing Signals the Markets are Sending About the Global Economy.” So what are policymakers going to do about it?
Well, we know QE is useless. And we know that political gridlock is preventing countries from launching massive fiscal stimulus programs like we saw the last time around. That doesn’t leave governments with many options besides what they should have done in the first place — done sensible things on the tax and regulation front to encourage SUSTAINABLE spending, investment, and consumption.
Remember that $51.5 billion AbbVie (ABBV, Weiss Ratings: B+) move to buy Shire Pharmaceuticals (SHPG, Weiss Ratings: B-)? Looks like the tax inversion deal could be on ice after the Obama administration stepped in to make redomiciling overseas a less financially attractive option for U.S. companies. We’ll find out over the next few days for sure whether the transaction will happen.
Until next time,
P.S. Martin’s Ultimate Retirement Course can give you some very productive — and unique — answers you’ve never seen before! On Wednesday, October 22nd, he will reveal the massive wealth-building opportunity that has fallen into your lap just in the nick of time. Registration ends this coming Monday, make sure to click here to save your spot for this free course!