US Stocks Slump Ahead of Rate Decision Week
New York (Dec 12) Stocks cratered on Friday afternoon as investors' fears came to a head: crude oil fell to a fresh seven-year low and Wall Street began to question what the Federal Reserve would do after its initial rate hike.
"With the Federal Reserve eyeing its first rate hike in almost a decade [in the coming] week, attention has shifted from what the Fed will do now and instead what the Fed will do later," said Christopher Vecchio, Currency Analyst at DailyFX. "Markets have started to look down the line at the projected path of future policy rates."
Benchmark indexes closed the week sharply lower with the bulk of losses concentrated on Friday. The S&P 500 was down 3.8% for the week, the Dow Jones Industrial Average slid 3.3%, and the Nasdaq fell 4.1%. The S&P 500 and Dow are down for the year, while the Nasdaq remains higher.
Fed Chair Janet Yellen's rhetoric following the Wednesday announcement will be a tightrope walk and one that will largely determine how the markets move. Here's the rub: she needs to both argue the economy is strong enough to justify an initial hike, while not robust enough to warrant a steep tightening path. But, thankfully, she has given herself a way to couch the hike in a dovish way.
"She very intelligently in her speeches [recently] provided herself with an out: by going early we can go more slowly and more gently, whereas if we waited too long, we would have to be more aggressive," said Steve Chiavarone, associate portfolio manager at Federated Investors, as to Yellen's approach.
Until then, oil prices will likely continue to pressure markets after closing out a disastrous week with its worst losses of the year. Oil closed down 11% for the entire week after the Organization of Petroleum Exporting Countries' decision to hold record production levels and the International Energy Agency warned of a slowdown in global oil demand.
The energy sector was the worst performer on markets Friday. Chevron (CVX - Get Report) , Exxon Mobil (XOM - Get Report) , Kinder Morgan (KMI - Get Report) and ConocoPhillips (COP - Get Report) were sharply lower, while the Energy Select Sector SPDR ETF (XLE) fell 3.2%.
In deals news Friday, Dow Chemical (DOW) and DuPont (DD) officially announced Friday they would merge. The new chemicals company will be called DowDuPont until splitting into three separate publicly traded companies around 18 months to two years after the merger is finalized. The companies expect to reap $3 billion in synergies over the next two years. Dow fell 3.8%, DuPont shares declined 5.6%.
Alibaba (BABA) fell after announcing that it will acquire South China Morning Post, a Hong Kong-based, English-language newspaper. The play is suspected to be a move to influence Western media that has traditionally been harsh on China's government.
Source: TheStreet
