David Moenning

About the Author David Moenning

David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980 and has been an independent money manager since 1987. Thus, Dave has been live on the firing line and investing for a living for more than 25 years.

Daily State Of The Markets: Are The Worries For Real?

You knew it was coming. After a record-breaking run, where the S&P 500 managed to close above its 5-day moving average for a jaw-dropping 29 consecutive days and gained +11.3% along the way, some worry has suddenly returned to the stock market.

In reality, it almost doesn’t matter what the concerns are at this stage of the game. The bottom line is that when a market goes too far, too fast, something ALWAYS comes out of the woodwork to knock the bulls off their stride for a while. And sure enough, after an impressive joyride to the upside, which was driven by talk of QE, more QE, and well, nothing else really matters these days, it isn’t terribly surprising for the bears to suddenly come up with something to sink their teeth into.

The question, of course, is if the worries are just that – worries – or something more fundamental in nature. Lest we forget, it was the fundamental issue of growth slowing that caused the only pullback worth noting in the last two years during mid-September and early-October.

The key is that if the current worries are justified, the bears may have some room to run here. And if not, then the pullback, which is currently just 2 days old, may end as quickly as it arrived given the current status of the calendar.

S&P 500 – Daily

So, let’s take a look at the current worries in the market at the present time…

All About Oil

While oil prices have been falling for more than five months now, crude’s impressive dance to the downside is now atop the list of worries facing the stock market, the banking industry, and possibly the global economy.

The focus here is that OPEC announced last week that the cartel would NOT cut the current rate of production. In short, this means that the glut of oil seen in the market is likely to stick around for a while and that prices could easily keep falling.

U.S. Oil Fund (NYSE: USO) – Daily

While the drop in oil prices is definitely a huge positive for consumers (some are calling the dive in gasoline prices QE4), it presents a potential problem for the shale boom in the U.S. as getting oil out of shale is more expensive than traditional methods.

Word is that OPEC in general and the Saudis in particular are targeting the U.S. oil boom as a major threat to their monopoly on the production of crude. The thinking is that by pushing prices down – perhaps dramatically so – the marginal players in the shale game will fold quickly and the industry will stop expanding. In sum, this would allow OPEC to protect their market share.

The fear is that a consolidation in the shale business would also bring a halt to the industry’s massive job creation, which some analysts argue has been the backbone of the country’s job growth seen since the end of the Great Recession.

And finally, there is the concern that the drop in oil prices will cause a surge in junk bond defaults. Reports indicate that as much of 20% of all junk debt is tied to the oil patch. And, as the progression goes here, defaults in junk bonds would in turn, hurt the banking industry, with some analysts calling for a resumption of the credit crisis and a collapse of the global banking system.


This is clearly NOT a new concern as fear of the economic slowdown in places like Europe and China have been with investors for much of 2014. However, the most recent data shows the slowdown to be real as Europe is a whisker away from officially re-entering recession and China’s growth rate has reached the point where officials are talking about rate cuts and more generalized stimulus.

Here We Go Again

While this is not on the front burner at the moment, investors will soon learn that another government shutdown in Washington is in play. Reports indicate that the government’s current funding runs out on December 11. And with the President hardly appearing to be in a deal-making mood, things could get ugly again – in a hurry.

They Haven’t Gone Away

Next up is the Middle East. While ISIS has been out of the headlines for a while now, fear of what could happen in the Middle East is also creeping back into the mix. Recall that ISIS is advancing on Kobani and now has the Syrian city surrounded. So, this remains another concern that could attract attention in the stock market.

Apple Sales Were…Wait, What?

Although it seems ludicrous, there were reports Monday of Apple (NASDAQ:AAPL) having a bad Black Friday weekend. The fact that the world’s biggest maker of cool stuff experienced a flash crash Monday morning didn’t help much either as trading in AAPL accounted for 35% of all trades for a few minutes there.

The Holiday Shopping Season

Which brings us to the fear that the Holiday shopping season could disappoint. Our furry friends used a report showing that sales for the Thanksgiving/Black Friday weekend were down 11% in order to further this fear. The key concern is that sales won’t bring the upside surprise to the Holiday Shopping Season that so many analysts have been calling for.


So, there you have it… the laundry list of fears/worries that have produced the -0.94% decline in the S&P 500 so far. Terrifying stuff, right?

Again, the question is if any of the above is enough to derail the bull train. Tomorrow we will look at each problem and assess whether or not there is a real threat to the stock market and/or the global economy.

Turning To This Morning

The wires are full of headlines again this morning with most of the focus remaining on the action in the oil pits. Despite an impressive rebound in crude yesterday (crude futures rallied 4.3% Monday, which was the biggest one-day pop since August 2012), there remains a great deal of skepticism surrounding the question of whether or not oil has reached a bottom. Next up, Chinese stocks rallied hard as the Shanghai Composite surged 3.1%, which was the biggest one-day gain since September 2013. The improved mood seems to be tied to increasing expectations for a system-wide rate cut. And finally, there continues to be a great deal of speculation about what shoppers will or won’t do, and when. However, it is very early in the shopping season and the negative reports do not appear to be getting legs so far. Stocks in Europe are higher in the early going and U.S. futures are pointing to a modest improvement at the open.

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