>>> US Close Dow-0.66% S&P-0.72% Nasdaq-0.82% Russell-0.92%

Closing Market Summary: Oil Concerns Lead Market Lower 

The major indices ended Wednesday on a negative note after the market faced substantial selling pressure into the close with all the major indices settling near their lows. Despite the retreat today, the S&P 500 (-0.7%) was able to stay in positive territory for the year (+0.2%). The benchmark index outperformed the tech-heavy Nasdaq (-0.8%), which narrowed its 2015 advance to 7.0%.

Equity indices slipped into the open after overnight selling pressure in oil drove the commodity below the $37.00/bbl price level. This price action came after the American Petroleum Institute reported that crude stockpiles rose by 2.9 million barrels versus a decrease of 3.6 million barrels last week. An hour after the open, the Energy Information Administration disclosed a build of 2.629 million barrels on their weekly crude inventory report versus an expected draw of 2.457 million barrels. The commodity fell 2.9% on the day, ending at $36.80/bbl.

Accordingly, the commodity-sensitive energy (-1.5%) and materials (-1.0%) sectors posted the largest losses while utilities (-0.2%), consumer staples (-0.4%), healthcare (-0.5%), industrials (-0.8%), technology (-0.8%), consumer discretionary (-0.8%), and financials (-0.8%) outperformed.

In the energy space, large-components Exxon Mobil (XOM 78.11, -1.05) and Chevron (CVX 90.09, -1.16) kept pace with the decline in the broader sector, while pipeline and equipment companies such as Kinder Morgan (KMI 14.54, -0.56) lead the losses thanks to a corresponding drop in natural gas. The other energy component declined 5.3% today and ended at $2.25/MMbtu.

Elsewhere, in the health care group (-0.5%), the influential sector was helped by large-cap components Merck & Co. (MRK 53.22, -0.09) and AbbVie, Inc. (ABBV 59.80, +0.35) as the two helped the sector stay ahead of the broader market. Merck lost 0.2% and AbbVie added 0.8%. Meanwhile, biotechnology finished behind the sector, evidenced by a 0.7% decline in iShare Nasdaq Biotechnology ETF (IBB 340.86, -2.25).

In Treasuries, the benchmark note spent most of its day near its low, but investor participation was well below average, leaving the 10-yr yield unchanged at 2.30%  On a somewhat related note, Puerto Rico's Governor Alejandro Garcia Padilla stated that the island will default on a $35.90 million payment due to the Infrastructure Finance Authority and a $1.40 million payment due to its Public Finance Corporation. However, Puerto Rico will pay $328.70 million to settle its general obligations, thus avoiding fallout from defaulting on debt backed by constitutional guarantees.

Once again, today's participation was very light with fewer than 600 million shares changing hands at the NYSE floor.

It was a quiet day with economic data limited to November Pending Home Sales, which fell 0.9% from a revised increase of 0.4% (from 0.2%) in October. The consensus expected an increase of 0.5% in November.

Tomorrow's economic data includes, weekly Initial (consensus 270,000) and Continuing Claims (consensus 2213k), which will be released at 8:30 ET while the Chicago PMI for December (consensus 50.1) will cross the wires at 9:45 ET.

  • Nasdaq +7.0% YTD
  • S&P 500 +0.2% YTD
  • Dow Jones -1.2% YTD
  • Russell 2000 -4.7% YTD 

WSJ : European Equities: The Burden of Hope

European Equities: The Burden of Hope

There are good reasons to invest in European equities—the problem is that everyone agrees about them

European stocks have offered investors euphoria and despair in 2015, and are ending the year with modest gains. Many are still betting that Europe can perform in 2016. That in itself is a problem.

This year has offered a wild ride. The Stoxx Europe 600 rose a dizzying 20.9% by mid-April, only to crash back to earth in August as investors panicked over China and deflation; stocks then regained their poise but have been pummeled by disappointment over European Central Bank policy and a renewed rout in commodities. The index is now up 7.3% for the year, far off its peaks; the weakness of the euro means it is down in dollar terms.

But hope springs eternal. Relative to other parts of the globe, the European economic picture still looks supportive. Growth has held up in the face of global headwinds; leading indicators point to continued expansion. Unemployment is falling, low oil prices should boost consumers and fiscal policy has ceased to be a drag. The ECB, despite December’s failure to match market expectations, is still loosening monetary policy, and interest rates are remarkably low while lending is picking up. The backdrop is supportive.

Meanwhile, the performance in 2015 suggests that caution has prevailed in European equities: the winners have been defensive sectors like food and beverage. Yield is still a big focus for investors given the negligible returns available on government and high-grade corporate bonds. Equity investors have been behaving more like bond investors in terms of risk appetite. Relief in commodities, an easing of emerging-market fears, or stronger eurozone growth could all give European markets a boost.

As a result, European equities, along with Japanese stocks, are a common choice as a better bet than their peers in 2016. But that consensus view poses a challenge: if everyone already likes European stocks, it is difficult to see how they can perform. Popular trades are vulnerable to disappointment.

The external risks are clearly large and hard to predict: commodities and China look like wild cards. There are disturbing rumblings in the U.S. credit market, where high-yield bonds are in trouble. But homegrown problems remain too. European earnings have once again failed to pick up in aggregate, although the meltdown in commodities is largely to blame. But with the Stoxx Europe 600 already trading on about 15 times the next 12 months’ earnings, according to FactSet, earnings need to rise. Expectations for next year are moderate, with growth of 7-8% forecast.

The eurozone successfully coped with the renewed threat of a Greek exit in 2015 but political risk isn’t abating: the refugee crisis could ultimately be a much harder problem for Europe to deal with, although so far it has had little market impact.

The base case for European equities is still strong enough for investors to keep the faith. But it isn’t as compelling as it was a year ago. Being popular isn’t enough to guarantee success.

>>> FBR Capital highlights the top 10 potential M&A ideas in Software for the co

FBR Capital highlights the top 10 potential M&A ideas in Software for the coming year 

FBR Capital sees the following names as possible M&A plays in 2016 (in no particular order): (1) Cisco and NetApp, (2) Cisco and FireEye, (3) IBM and Splunk, (4) IBM and Qlik, (5) HP and Box, (6) HP and Qlik, (7) Oracle and Netsuite, (8) Microsoft and Imperva, (9) Microsoft and Qualys, and (10) Symantec and Proofpoint.

>>> US Gapping down

Gapping down

M&A news: PBY -2.6% (Bridgestone will not counter latest Carl Icahn bid of $18.50/share).

Select metals/mining stocks trading lower: AU -2.9%, BHP -1.2%, BBL -0.7%, RIO -0.2%.

Select oil/gas related names showing early weakness: LINE -6.5%, WLL -4.7%, CHK -4.6%, DO -2.5%, SLB -1.8%, NE -1.7%, COP -1.6%, HES -1.5%, CVX -1.4%, KMI -1.3%, STO -1.2%, XOM -1.2%, BP -1%, RIG -0.8%.

A few Brazil ADRs are lower on light volume: SID -3.5%, BAK -3.1%, VIV -2.6%, PBR -3.2%, GGB -2.5%, BRFS -2.2%

Other news: ENZN -23.1% (trading ex-dividend), AVXL -6.1% (cautious blog mention), INVT -5.1% (following yesterday's ~75% move higher), FXCM -3% (following this week's surge higher), FCX -2.4% (still checking), CENX -2.1% (will delist from the Iceland Stock Exchange; will remain listed on NASDAQ), CLIR -2% (filed $30 mln mixed securities shelf offering), HSBC -1.4% (weakness in overseas trading),BCS -1.1% (still checking), CMCM -0.5% (enters into a new strategic cooperation agreement with Tencent), TERP -0.3% (SunEdison acquires a 33% ownership interest in a 336 megawatt DC portfolio of operating solar power plants from Dominion (D), transfers interest to Terra Nova Renewable Partners), BAC -0.2% (redeems $2 bln of trust preferred securities), FB -0.2% (Reuters details a court ruling that Facebook (FB) must face two shareholder lawsuits stemming from its 2012 IPO).

Analyst comments: STEM -4.4% (ticking lower, target lowered to $1.50 from $2.10 at H.C. Wainwright following news of strategic realignment), VNR -0.6% (downgraded to Equal-Weight from Overweight at Morgan Stanley), DDD -0.5% (target lowered to $14 at Needham -- Consumer exit is one step in what should be a long road to recovery).