Month: December 2014

Yet Again, The Fed Saves The Day…

Posted on by George Mahfouz

U.S. stocks and global markets fell sharply at the beginning of the week as the Russian ruble collapsed. This meltdown spread fears of contagion throughout the world while sending our markets down over 5% within a one week span. Then like clockwork, in a statement after the conclusion of the latest Federal Reserve meeting, the central bank reiterated that it is in no hurry to raise interest rates. This was enough to send the Dow Jones Industrial Average (chart) soaring 4.15% over the past two trading sessions, the Nasdaq (chart) gained an eye-popping 4.41%, the S&P 500 (chart) jumped 4.48% and the small-cap Russell 2000 (chart) over the past two trading sessions posted a staggering 4.63% gain. Yes folks, these two-day gains are not a typo.

Seemingly, time and time again, whenever there is a U.S. stock market correction in the making, the Fed steps in and calms the nerves of investors. The question I have is when will the musical chairs stop? What a tough climate to invest in especially when you really can’t gauge the fundamentals as the markets are heavily reliant on what the Federal Reserve does or does not do. When the markets were selling off, technicals broke down, moving averages were violated and the bears were beginning to growl. However, as we have witnessed over the past 5 years or so, it has been painful to be bearish on equities and any sell-off has been short lived. It may indeed take rising interest rates to slow down this bull market? Until then, it’s great to be a bull. That said, I am going to sidelines between now and year-end for a much needed break, and to see how things settle out.

Both Paula and I wish everyone a very safe and happy holiday season 🙂

~George

OPEC Doesn’t Budge, Oil And The Energy Sector Tumble!

Posted on by George Mahfouz

The Organization of the Petroleum Exporting Countries decided on Thursday not to cut production as many had hoped. This decision sent crude oil and energy stocks tumbling. The overall energy sector fell over six percent on Friday while U.S. crude fell to $66.36 per barrel, a level not seen in over four years. On the bright side however, lower oil prices will ultimately pass through to the consumer, which should be a positive for the overall economy. This may be the reason why the markets in general didn’t see too much pressure last week. For the week, the Dow Jones Industrial Average (chart), the S&P 500 (chart), and the small-cap Russell 2000 (chart) closed essentially unchanged, while the Nasdaq (chart) posted a strong weekly gain of 1.7%.

Friday’s trading session closed early due to the Thanksgiving holiday, so I will be very interested to see how crude oil and the energy sector trades this week as market participants get back to work and normal volumes resume. That said, I am expecting more downward pressure on oil and energy stocks in the near term. Without question the smaller, leveraged and debt-ridden oil and gas companies are in a precarious position, especially those in the exploration stages. These companies may be forced into consolidation or have no choice but to fire-sale part of their asset base in order to reduce debt levels. What I will be looking for in the coming weeks are large and mega-cap energy companies that have had their stock hit, and that have rock solid balance sheets that can weather the storm in this environment.

Despite the volatility the markets have experienced here in the fourth quarter and with crude oil falling sharply, three of the four major averages are still up impressively on the year, with the small-cap Russell 2000 (chart) basically flat. Now that we are in the month of December, I do not see any real headwinds as we close out 2014. In fact, with lower oil, the consumer may be a bit more cheerful as the Christmas holiday season fast approaches. If this is the case, stocks as a whole could end the year on their highs. Have a great week 🙂

~George