By Anora Mahmudova and Carla Mozee, MarketWatch
10-year Treasury yield at 1.9%
NEW YORK (MarketWatch) -- The U.S. stock market endured another
day of selling due to slumping oil prices on Tuesday, with the Dow
industrials recording its worst start to a new year the 2008
financial crisis.
Indexes bounced off session lows in the late-afternoon trade,
which some analysts attributed to short-covering, however, a meager
rally late in the day quickly dissipated.
The benchmark S&P 500 index fell for the fifth-straight
session and is off more than 4% from its peak reached on Dec 29,
2014. Slumping oil prices and flight to havens such as Treasurys
led to a bout of selling for the second consecutive day.
Investors were scouring for safe industries such as utilities as
well as U.S. Treasurys, pushing yields to the lowest levels since
the Oct.15 mini-flash crash.
The S&P 500 (SPX) closed 17.97 points, or 0.9%, lower at
2,002.61, with only two sectors remaining in the green -- utilities
and telecoms. Large-cap energy sector stocks, which fell 4% on
Monday, slumped 1.5% again on Tuesday.
The energy sector is down 22% since the June 30, 2014 close,
while the S&P Small Cap 600 energy sector has lost nearly half
of its value in that time, according to Howard Silverblatt, senior
index analyst at S&P Dow Jones Indices.
The Dow Jones Industrial Average (DJI) dropped 130 points, or
0.7%, to 17,371.64, a day after a 331-point drop on Monday. The
Nasdaq Composite (RIXF) fared the worst, dropping 59.84 points, or
1.3%, to 4,592.74, ringing up a fifth-straight day of losses.
JJ Kinahan, chief strategist at TD Ameritrade, noted that it
would be difficult for stocks to rise in the face of growing demand
for bonds.
"There is a tremendous appetite for fixed income - mainly
because of nervousness about commodity markets. When stock
investors focus on oil prices, their first reaction is selling and
unwinding of long positions," Kinahan said.
Investors appear to discount positive effect of lower oil prices
on broader economy and continue to view the slide in crude as a
symptom of slower global growth, which will threaten improving U.S.
economy.
Randy Frederick, managing director of trading and derivatives at
the Schwab Center for Financial Research, noted that big down moves
in oil continued to spook investors despite the longer-term
benefits of lower energy prices.
"Markets are overdue for a correction, but so far selling has
been measured and not at panic levels. At the moment there are many
factors that are weighing on markets, from Greece's potential exit
from euro to possible actions by the Fed, which will struggle to
raise rates in current environment of falling inflation," Frederick
said.
Frederick added that the Vix index must hit 30 before the market
reaches panic levels. The Vix, known as Wall Street's fear gauge,
closed up 6% at 21.12.
Kate Warne, investment strategist at Edward Jones, said that
Monday's selloff was an overreaction to uncertainty surrounding the
eurozone economy as Greece looks likely to exit the union, while a
slide in oil prices stoked further worries about stagnating global
economic growth outside of the U.S.
"In the long-term, lower oil prices are a positive to major
economies, but until oil finds a bottom, there will be short-term
fear over global growth," Warne said.
Lackluster economic reports did little to help spread optimism.
Companies in the U.S. service sector such as retail and real estate
grew at a slower but still-healthy pace in December, according to a
survey of senior executives released Tuesday. Orders for goods
produced in U.S. factories fell 0.7% in November, hit by
transportation equipment, matching the forecast from
MarketWatch-polled economists, according to government data
released Tuesday.
Analysts said that investors are wary of making big bets ahead
of the important jobs report on Friday, which will shed light on
how well the U.S. economy is performing amid global weakness.
Crude-oil prices extended losses on Tuesday, with U.S. oil
futures (CLG5) closed down 4.2% below $48 a barrel for the first
time since April 2009. Brent futures fell 3.8% to $51.10 a
barrel.
"The economic conditions that oil faces continue to be
aggressively against the commodity, making buyers extremely
hesitant to even consider entering long positions," said Jameel
Ahmad, chief market analyst at FXTM, in a Tuesday note. "There are
also suspicions that as oil companies struggle to adapt to lower
profits, there could be mergers and acquisitions taking place in
the future, and this will weigh on investor sentiment. What's the
answer to this equation? Bearish moves for oil."
Stocks to Watch: Verizon Communications Inc. (VZ) has approached
AOL Inc.(AOL) about a possible acquisition or joint venture,
Bloomberg reported Monday, citing people with knowledge of the
matter. Shares in AOL jumped 3.4% Verizon's CEO Loweell McAdam
played down reports of the company merging with AOL, and instead
pointed to the possibility of a partnership with one or more media
companies.
Cyberonics Inc.(CYBX) shares fell 5.9% after the medical-device
maker said an appeals board supported a 2007 decision by the
Centers for Medicare and Medicaid that denied coverage of the
company's pacemaker-like device for treating depression.
Coach Inc. (COH) shares were fell 1.2% after the company said
it's buying luxury footwear brand Stuart Weitzman from private
equity firm Sycamore Partners, in a deal valued at up to $574
million.
Nielsen N.V.(NLSN) shares fell 2.2% after financial-news network
CNBC said it will no longer rely on the TV-ratings specialist to
measure its daytime audience, beginning later this year.
(Read more: Movers & Shakers column
http://www.marketwatch.com/story/cyberonics-micron-shares-in-focus-tuesday-2015-01-06.).
Other markets: Meanwhile, the yield on the 10-year Treasury fell
13 basis points to 1.9%, according to Tradeweb.
In Asia, the Nikkei fell 3% to post its biggest one-day loss in
nearly 10 months, and Indian shares plummeted 3.1%, their steepest
loss since September 2013. European stocks closed lower.
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