Oil Freefall Gives Dow Worst Week Since 2011; VIX Jumps

[Purveyor]

Signs of an improving economy did nothing to shield stocks from oil’s freefall as the Dow Jones Industrial Average (INDU) had its worst week since 2011, volatility surged and fund managers said anxiety is building among clients and themselves.

More than $1.2 trillion was erased from global equities over the five days, as the drop in crude below $58 a barrel raised concern over the strength of the global economy. The Chicago Board Options Exchange Volatility Index, a measure of trader anxiety that has spent most of the year hovering about 25 percent below its historical average, jumped 78 percent as oil’s impact rippled through financial markets.

“This week was a bit of a game changer,” Marshall Front, chief investment officer and chairman of Front Barnett Associates LLC, said by phone. “With oil prices falling there has to be a lot of reassessing going on.”

The Dow lost 677.96 points, or 3.8 percent, to 17,280.83. The Standard & Poor’s 500 Index (SPX) slid 3.5 percent to 2,002.33, its biggest drop since May 2012. The MSCI All-Country World Index declined 3.8 percent, also the most since 2012. The worst rout in Greek equities since 1987 sent European shares to their biggest weekly slump in more than three years. Canadian stocks plunged 5.1 percent and Brazil entered a bear market, falling more than 20 percent from a September peak.

Money managers speaking after the Dec. 12 close said the speed of oil’s plunge was taking a psychological toll in a market where the S&P 500’s 2014 return has slipped from more than 12 percent on Dec. 5 to about 8 percent now. Philip Orlando, who helps oversee $350 billion as New York-based chief equity market strategist at Federated Investors Inc., said he’d “re-run models” on Monday and see if a rebound materializes.

‘Throw Up’

“It may be that smart money heard things that the long money crowd didn’t that worked its way into the market in the last two hours,” Orlando said by phone. “Bottom line is, you pay attention to fundamentals and the fundamentals are solid, and then you look at your screen and you want to throw up.”

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http://www.bloomberg.com/news/2014-12-12/oil-freefall-gives-dow-worst-week-since-2011-vix-jumps.html

[Warpy]

1. Oil's been on a slide for weeks and weeks

Don't tell me investors in stocks represented by the Dow just found out about it.

I can't believe the garbage that comes out of stock analysts. Do they really think we're this stupid?

[Lucky Luciano]

3. Since Thanksgiving, the fall has been exceptionally rapid.

After the Saudis didn't allow opec to cut prod, the free fall has been amazing.

[still_one]

2. Falling oil prices are good for the economy and the market. From transportation, agriculture, and

Every other industry except oil will benefit from the falling oil prices.

The most likely reason the market took a dive is because December always brings in cross trades for tax purposes. In addition, the market has essentially gone straight up, and is due for some profit taking.

Stocks are still quite high

The s&p 500 and the Dow do contain oil companies, and using those indexes as a basis for how the economy is doing is prone to errors

A lot of companies are going to do quite well because of the falling oil prices, including consumers.

[Lucky Luciano]

4. Oil companies are a large component of the SPX.

Also, while oil's fall has a lot of excess supply reasons, there are demand concerns globally - outside the U.S., demand is lower...can the rest of the world be sick and the U.S. doesn't catch the flu? Hence the concerns outside of the oil companies - note the 10y and 30y bond yield moves - those are indicative of a "risk-off" trade.

[still_one]

5. we agree on SPX I think which is why I said it isn't the most accurate measure of what is good for

the economy, unless you are long oil. Every other industry will benefit from the decrease in oil prices, and so will the consumer. That is good for the majority of the economy, which is why I was commenting on the article posted in the OP, implying that because the SPX and DOW dropped, in this case does not mean it is bad for the economy.

As you indicated what these so-called analysts are concerned about is that the oil price decline is due to decrease demand, and that indicates a slowing economy. I do not entirelysubscribe to that. The main reason why oil has dropped so rapidly is because OPEC could not come to an agreement on production curbs. OPEC controls 40% of the worlds oil market.

Demand is affected by economic activity, increased efficiency, and a switch away from oil to other fuels. In addition, turmoil in middle eastern countries can affect the price of oil. Iraq and Libya are outputting 4 million barrels a day combined, and their output has not been affected. The market does not believe there is a high geopolitical risk at this time. The U.S. is now a large oil producer, and because of that we are importing much less crude. One reason why Saudi Arabia has no desire to curb production is because the main benefits would go to countries they do not get along with, such as Iran and Russia. Saudi Arabia have 900 billon in reserves, and can tolerate lower oil prices without any problems. The biggest risk for the oil industry, including frackers who have borrowed heavily on the expectation of continuing high prices, and companies involved in deep water drilling. The greatest pain is also in countries where the governments are dependent on high oil prices to pay for costly foreign adventures, including Russia, Iran, already being hurt by economic sanctions.

I believe most of the economies will benefit from the lower oil prices, except for those who bet that oil would stay high, and did not hedge that bet

[Lucky Luciano]

6. Demand forecasts were cut yesterday...again...

That was why oil fell so much yesterday. Most if that demand cut is outside the U.S. The US is correlated to other economies, so that is where the U.S. demand question may come. Of course, it does help non oil companies and consumers...let's see the final retail numbers for the holidays...

[still_one]

7. The extremes we have gone seen through the years from interest rates to oil prices sure to

so many other events sure have provided some interesting times