By Anora Mahmudova and Carla Mozee, MarketWatch
Oil prices drop to fresh 5-year lows
NEW YORK (MarketWatch) -- U.S. stocks were getting pounding
during early morning trading Monday as concerns about a surging
dollar and crude oil -- which was hitting five-year lows -- weighed
heavily on investor sentiment.
The S&P 500 (SPX) was off 24 points and the Dow Jones
Industrial Average (DJI) sank more than 200 points as energy and
materials stocks fell sharply. The Nasdaq Composite (RIXF) also
fell.
(https://twitter:com/bespokeinvest/status/552125197881724928
.)
Meanwhile, the 10-year Treasurys rose, sending yields down five
basis points to 2.06%, implying that investors were seeking safety
in U.S. government bonds. Yields move inversely to bond prices.
A dearth of data early in the week, puts the spotlight squarely
on oil, which has fallen more than 3% Monday and the euro, as the
shared European currency dropped to a nearly nine-year low against
the dollar.
Brian A. Fenske, head of sales trading at ITG, independent
broker based in New York, said equity investors get nervous when
oil prices move up or down quickly, but cautioned not to read too
much into a one-day move.
"In the absence of company-specific news, macro headlines will
affect stock markets, and news around euro stability and falling
oil prices as well as recent levels of bullishness are the reason
we are seeing a pullback," he added.
Indeed, the CBOE Vix index, measuring implied nervousness in
stocks on the S&P 500, jumped 14% to above 20. Every 10% move
on the Wall Street's fear gauge has been associated with a 1% move
in the index.
The U.S. jobs report, due Friday, will be among the market's key
drivers this week as economic data will be scant.
Oil and the S&P 500: In turn, a rise in the dollar (DXY) was
weighing on dollar-denominated commodities such as oil, with oil
futures (CLG5) down nearly 4%, trading at prices not seen since
mid-2009. Energy stocks sold off and were among the worst
performers on the S&P 500 as oil prices -- which have dropped
about 50% since June -- struggle to find a bottom.
Nabors Industries Ltd (NBR) , Transocean Ltd (RIG) and Denbury
Resources Inc. (DNR) fell more than 5%.
Energy was the worst-performing sector in 2014 on the S&P
500 (SPX). Read: Here's who been hurt the most by the oil-price
slide.
"Continued dollar strength should continue its weekly theme, no
matter what the payroll result on Friday. However, as usual, equity
markets are likely to be in for some fierce volatility over the
number," said James Hughes, chief market analyst at Alpari UK, in a
Monday note.
Revenue and capital expenditure plans by energy companies "have
been and will continue to be slashed," as a result of the oil-price
drop, said Goldman Sachs analysts in a note. The positive impact of
lower oil prices on profit for non-energy companies is more
difficult to quantify, said Goldman, but its model indicates that
every shift of $10 a barrel in oil prices translates into about $2
a share for S&P 500 index per-share earnings. They expect Brent
crude to average $84 a barrel in 2015.
"Simply put, reduced energy company earnings are more than
offset by higher revenues and margins for many other areas of the
market," said Goldman analysts.
Positioning before the release of December U.S. nonfarm-payrolls
numbers on Friday is seen as driving the market's direction this
week, overshadowing minutes from Federal Reserve's most recent
meeting, due Wednesday, and service-sector data, due Tuesday.
Analysts surveyed by MarketWatch expect another 215,000 jobs were
added last month, and the unemployment rate may decline to
5.7%.
Stocks to Watch: Ford Motor Co. (F) and General Motors
Co.(GM.XX) shares were hit on Monday, falling 3% and 1.4%
respectively, in spite of strong December sales figures.
Cempra lnc.(CEMP) shares surged 10% following positive results
from a late-stage trial of the oral version of its solithromycin
antibiotic.
Boston Scientific Corp (BSX) shares rose after J.P. Morgan
upgraded the stock to overweight from neutral after it lagged peers
in 2014.
Other markets: The euro's drop to fresh multiyear lows came
after a Der Spiegel magazine report that Germany is cooling on its
commitment to preventing Greece from exiting the eurozone, though
Berlin officials later insisted the German government expects
Greece to stay with the shared currency. Read: Leading economist
warns of devastating turmoil if Greece leaves the eurozone.
In Asia, mainland Chinese stocks rallied to their highest close
in more than five years, but Japan's Nikkei Average slipped 0.2%.
European stocks swayed between gains and losses. Gold futures
(GCG5) gained ground.
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