The S&P 500 and other major U.S. indices danced around the unchanged line on Monday as the quietest October, in terms of trading activity, came to an end. Large-cap stocks remain within the confines of an extremely tight and narrowing two-month trading range that caps three years of listlessness. With the presidential election next Tuesday and a Federal Reserve policy decision later this week, the listlessness will continue a little longer.
But elsewhere in the market — particularly in energy — there was action to be had.
In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 and Nasdaq Composite and the Russell 2000 gained 0.3%. Treasuries were mostly stronger, the dollar was unchanged and gold lost 0.2%. The big move on the commodity front was crude oil, which was slammed down 3.8% as OPEC failed to deliver the expected production freeze agreement teased in September.
Energy Stocks Bludgeoned
Crude oil and energy stocks were hammered on a “no deal” result out of the OPEC meeting in Vienna, capping months of on-again/off-again hype for a possible supply freeze deal. This time, a deal featuring a decline in Saudi output was teased in September. But it broke down amid ongoing bullheadedness from the Iranians and Iraqis over their output levels.
Furthermore, there is no evidence that non-OPEC members such as Russia are interested in joining in.
Why would they? It’s a classic prisoners’ dilemma: Better to let the other guy cut output and keep yours the same. Further discussions were pushed back to November, keeping the “hint-and-tease” act we’ve seen since February alive a little longer.
It’s no surprise then that energy stocks led the way with a 1.2% loss. Exxon Mobil Corporation (NYSE:XOM) fell 1.7%, pushing up the Nov $86 XOM puts recommended to Edge Pro subscribers to a gain of 135% since added on Oct. 26.
The Nov $6 puts against Chesapeake Energy Corporation (NYSE:CHK) are up nearly 60% since they were added on Thursday thanks to a 4.8% decline in the common. And the Nov $11.50 puts against the United States Oil Fund LP (ETF) (NYSEARCA:USO) are up more than 130% since added on Oct. 25.
Also, oilfield services provider Baker Hughes Incorporated (NYSE:BHI) fell 6.3% after General Electric Company (NYSE:GE) announced it would combine its oil-and-gas assets with the company in a cash-and-stock deal.
Elsewhere in the Market
Nike Inc (NYSE:NKE) fell 3.5% on a downgrade from analysts at Bank of America Merrill Lynch on concerns over market share loss on increased competition from the likes of Under Armour Inc (NYSE:UA) and Adidas AG (ADR) (OTCMKTS:ADDYY).
On the upside, utility stocks gained 2% thanks to the yield effect of stronger Treasury bond prices. Macy’s Inc (NYSE:M) gained 2.6% thanks to an upgrade by analysts at Deutsche Bank.
On the economic front, U.S. consumer spending increased in September as did inflation. The PCE price index gained 1.2% from last year in the largest year-over-year increase since November 2014. The Chicago PMI activity index was below expectations as production fell and new orders hit the lowest reading since May.
October marked the third straight monthly loss for stocks, with the Dow down 0.9% thanks to the lifting effect of gains in key stocks like Boeing Co (NYSE:BA) and Goldman Sachs Group Inc (NYSE:GS). The other indices weren’t as lucky: The S&P 500 lost 1.9%, the Nasdaq Composite lost 2.3%, and the Russell 2000 lost 4.8% as small caps tested down to lows not seen since July.
Looking ahead, volatility should increase heading into Wednesday’s Fed policy decision and Friday’s nonfarm payroll report — both of which will set the stage for a likely rate hike in December, depending on the market’s reaction to the Election Day outcome.
For now, a focus on defensive assets — long volatility, short crude oil — has boosted the holdings of Edge subscribers by 2.4% for the month.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
