Friends
There is a lot to discuss today, but since it’s Friday I will try to keep it short. We can expand on it all next week when the Fed is scheduled to meet. Today’s downturn in stocks was fueled by a drubbing in the high yield debt markets and the continued plunge in oil prices. Stocks spent the entire session in negative territory and the damage got worse as the day wore on.
By the close, the Dow Jones Industrial Average was down 309 points to finish the day at 17,265. The S&P 500 was down 39 points to close at 2012. Gold was up $4.50 to trade at $1076 per ounce, while oil was down $1.31 to trade at $35.45 per barrel WTI.
Just as the market decline in 2008 and 2009 was fueled by the collapse in credit markets (mortgage backed securities was the culprit back then), the volatility of the past few weeks is being stoked by the pain in the high yield debt market, led by the debt of over levered energy companies being punished by the collapse of the price of oil. The oil plunge is causing a double whammy to those who were reaching for yield over the past few years(which we continually warned against). First, MLPs with their rich dividend yields (dividends that are being cut now after the share price has already collapsed), and now the beloved high yield (junk) bond market. These were investments that carried risk, yet investors and advisors owned them in the protect portion of their portfolio where safe, low yielding investments were shunned.
As I said, the Fed meets next week, and goodness knows they will have a lot to chew on. We’ll discuss more in detail next week.
Have a great weekend everyone.
