The waterfall collapse in energy prices continued on Monday with West Texas Intermediate finishing at $31.41 after falling to a $30-a-barrel handle earlier in the session. That’s a level last seen in December 2003, when The Lord of the Rings: The Return of the King was topping the box office and Saddam Hussein was pulled out of a hole in the ground.
There was no particular catalyst for the drop in energy prices, although overnight volatility in Chinese markets fueled ongoing oversupply concerns as OPEC and U.S. shale producers maintain their bitter market share price war.
In the end, the Dow Jones Industrial Average gained 0.3%, the S&P 500 gained 0.1%, the Nasdaq Composite lost 0.1% and the Russell 2000 lost 0.4%. Treasury bonds weakened, the dollar strengthened, and gold lost 0.3%.
Defensive consumer staples stocks led the way with a 1% gain while energy stocks, not surprisingly, led the decliners with a 2.1% drop. Macy’s, Inc. (NYSE:M) gained 8.2% as it becomes increasingly likely the company will explore a real estate monetization strategy. Performance apparel maker Under Armour Inc (NYSE:UA) lost 6.7% after it was downgraded by Morgan Stanley analysts.
The Shanghai Composite lost 5.3% as investors reacted with disappointment to a lack of over-the-weekend stimulus. Instead, the People’s Bank of China fixed the yuan exchange rate higher for the second straight session (weakness in the yuan, and the capital outflows that have accompanied it, has been a point of concern).
The chatter is that Beijing will have an increasingly difficult time maintaining a 6.5% GDP growth rate in this environment.
The fourth-quarter earnings season kicked off after Alcoa Inc (NYSE:AA) reported better-than-expected results after the close thanks to large one-off charges. Earnings of four cents per share beat expectations by a penny. But the stench of it, accounting shenanigans was in the air after taking $534 million in restructuring charges. On a textbook GAAP basis, the company actually lost $500 million.
Technically, the situation remains gloomy with the Russell 2000 falling into outright bear market territory down 20% from its summertime high returning to 2013 levels. The S&P 500 also suffered a “death cross” today, a drop of the 50-day moving average below the 200-day average, last seen back in August.
For now, I continue to recommend a defensive stance with positions in assets like precious metals and volatility including the iPath Short-Term VIX (NYSEARCA:VXX) that is up more than 25% for Edge subscribers since November.
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.
