By Mark DeCambre, MarketWatch
Santa got run over by an oil tanker
NEW YORK (MarketWatch)--Talk about an oil spill. The spectacular
unhinging of crude oil prices over the past six months is weighing
mightily on the U.S. stock market.
And while it may be too early to abandon all hope that the
market will stage a year-end Santa rally, it appears that if Father
Christmas comes, there's a good chance his sleigh will be driven by
polar bears, instead of gift-laden reindeer.
Wall Street's gift: a major stock correction.
Indeed, the Dow Jones Industrial Average (DJI) already endured a
bludgeoning, registered its worst percentage decline since Nov. 25,
2011, down 677.96 points, or 3,78%. It was also the worst week for
the S&P 500 (SPX) on a percentage basis since May 18, 2012. The
S&P 500 was down 73. 04 points and 3.52% on the week.
But all that carnage is nothing compared to what may be in store
for the oil sector as crude oil tumbles to new gut-wrenching lows
on an almost daily basis. On the New York Mercantile exchange
light, sweet crude oil for January delivery settled at $57.81 on
Friday, its lowest settlement since May 15, 2009.
Moreover, the largest energy exchange traded fund, the energy
SPDR (XLE), is off by 14% over the past month and has lost a
quarter of its value since mid-June.
The real damage, however, is yet to come. By some estimates the
wreckage, particularly for the oil-services companies, may add up
to a stunning $1.6 trillion annual loss, at oil's current $57 low,
predicts Eric Lascelles, RBC Global Asset Management chief
economist.
Since it's a zero-sum game, that translates into a big windfall
for everyone else outside of oil players.
In his calculation, Lascelles includes the cumulative decline in
oil prices since July and current supply estimates of 93 million
barrels a day. It's a fairly simplistic tally, but it gets the
point across that the energy sector is facing a serious oil leak.
Here's a look at a graphic illustrating the zero-sum, wealth
redistribution playing out as oil craters:
It's important to note that Lascelles believes that the
downdraft in oil is largely a positive. The economist also believes
that oil sector's pain will be confined mostly to the energy
sector.
Read: Retail gasoline prices at lowest level in five years.
"Naturally, there are all sorts of second-round implications
extending via the wealth effect from investors owning the stocks
and bonds, etc., Lascelles told MarketWatch. "I can see how the hit
would be palpable, but don't forget about the big help that comes
from lower gas prices for households and other businesses," he
added.
There are signs that oil production growth is starting to
retrench among U.S. shale-oil producers amid the rout in oil. North
Dakota state officials on Friday said that oil production shrank by
4,000 barrels a day in October compared to the previous month.
But the pace of the slowdown may not be sufficient, at this
point, to staunch oil's price drop.
That's primarily because the negative momentum will be hard to
reverse without a serious move by the Organization of the Petroleum
Exporting Countries, which has thus far offered no signs that it
intends to cut oil production to tamp the worst oil drop in
years.
In fact, it delivered quite the opposite message looking at
recent remarks by Saudi Oil Minister Ali al-Naimi.
The slackening price of oil clearly has investors spooked. While
it means cheaper fuel costs for businesses and regular folks, for
some, the plunge suggests a more insidious problem is brewing:
deflation abroad.
MarketWatch's William Watts sums it up best here: Read 4 Reasons
collapsing oil prices are rattling stocks.
Trouble abroad
Oil isn't the only worrisome story as investors look at the week
ahead.
Europe's intractable, problem child Greece has been acting up
lately. Greek stocks posted their worst loss ever on Dec. 9. It was
a pretty hideous week for Europe's Stoxx 600 too. It's worth taking
a gander at how ugly the action was, as illustrated in the graphic
below:
Russian ruble rout
The decline of oil-dependent Russia's ruble against the soaring
dollar also will be a big story for investors to watch. The dollar
recorded a 10.5% weekly gain against the Russian currency for the
week ending Friday, it's largest in six weeks:
International sanctions and the meltdown in oil factors
prominently in Russia's pain, which has some market observers
worried that the Russian economy could face a repeat of its 1998
debt default.
Read: For Russia, a perfect storm of economic woe looms.
Earnings announcement
High-profile companies in boldface:
Report Date Company/Ticker (FactSet estimated EPS / revenue)
Dec. 15-16 Verifone Systems, Inc. FactSet Research Systems Inc. Navistar International Corporation Darden Restaurants, Inc. slated to report Tuesday earnings of 27 cents a share, sales of $1.5 billion, according to FactSet. Dave & Buster's Entertainment Inc.
Dec. 17 Joy Global Inc. General Mills Inc. expected to report earnings of 77 cents a share on sales of $4.8 billion.FedEx Corp. forecast to report earnings of $2.19 a share, sales of $12 billionHerman Miller, Inc. Jabil Circuit, Inc. Worthington Industries Inc Oracle Corp. expected to report earnings of 68 cents a share, sales of $9.5 billion
Dec. 18 Carnival Corporation pegged to report earnings of 20 cents a share on sales of $3.8 billionSanderson Farms, Inc. Accenture Plc Rite Aid Corporation Corp. slated to report earnings of 5 cents a share on sales of $6.7 billionScholastic Corporation Winnebago Industries, Inc. ConAgra Foods, Inc. Wall St. expects earnings of 60 cents a share on sales of $4.2 billionPaychex, Inc. Pier 1 Imports Inc. slated to report earnings of 20 cents a share on sales of $488.7 millionRed Hat Inc. Cintas Corporation NIKE, Inc. Class B
Dec. 19 BlackBerry Limited forecast to report a loss of 5 cents a share on sales of $938.1 millionCarMax, Inc. expected to report earnings of 54 cents a share on sales of $3.3 billion,Finish Line, Inc. Class A
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