U.S. equities were hit Wednesday by a combination of beleaguered crude oil prices and an alleged hydrogen bomb test by North Korea.
China was also again in focus, despite an equity market rebound, as currency and credit volatility mixed with weak economic data gives rise to credibility concerns for Beijing and the People’s Bank of China. The Caixin services PMI activity index fell to a 17-year low.
In the end, the Dow Jones Industrial Average lost 1.5%, the S&P 500 shed 1.3%, the Nasdaq Composite dropped 1.1% and the Russell 2000 ended 1.5% lower.
Treasury bonds were stronger, the dollar was mixed, gold gained 1.3%, and crude oil was slammed another 5.5% on inventory concerns to take prices below the $34-a-barrel level.
The Department of Energy reported that gasoline inventories rose by 10.6 million barrels, the largest weekly increase since May 1993.
Another drag, although counter intuitive, has been geopolitical tension between Iran and Saudi Arabia. This lessens the already small chance of OPEC cooperation to reduce output and stabilize prices.
No surprise this smashed energy stocks lower, losing 3.6% as a group. Chevron Corporation (NYSE:CVX) lost nearly 4%. AutoNation, Inc. (NYSE:AN) lost 10.5% after its CEO noted a 9% increase in December vehicle sales was misleading given significant retail discounts, especially in the premium luxury segment.
Apple Inc. (NASDAQ:AAPL) lost 2% on lingering iPhone demand worries. The boosted the Jan $110 AAPL puts recommended to Edge Pro subscribers back on Dec. 17 to a 265%-plus gain. Bank of America Corp (NYSE:BAC) lost 2% on fears of the market turmoil hitting Wall Street trading revenue, boosting the Jan $17 puts recommended to subscribers to a gain of 165%.
On a positive note, Netflix (NASDAQ:NFLX) gained 9.3% after announcing the global launch of its service in more than 130 new countries. Autonomous vehicle play Mobileye NV (NYSE:MBLY) gained 5.3% after confirming it was working with GM and Volkswagen (ADR) (OTCMKTS:VLKAY) to offer user-generated mapping to facilitate AV usage.
Macy’s, Inc. (M) gained more than 5% in after-hours trading after announcing job cuts in response to a 5.2% decline in November-December same store sales.
On the economic front, the November factory goods and durable goods reports were both disappointing. Factory orders dropped for the 13th month in a row — something that has never happened outside of a recession.
But the ADP private payrolls report was strong, posting its biggest monthly gain since 2014. That sets the stage for both a solid December jobs report on Friday and reinforces the Federal Reserve’s forecast for four 0.25% interest rate hikes this year. Fed vice-chair Stanley Fischer commented that this forecast was “in the ballpark” and that market expectations for just two rate hikes were “too low.”
For now, considering headwinds like crude oil and the approach of the fourth-quarter earnings season, I continue to recommend investors maintain a defensive positioning such as long volatility via the iPath Short-Term VIX (NYSEARCA:VXX) which is up 11% for Edge subscribers.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
