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Total (TOT) CEO this morning said he believed OPEC would support oil prices as they have in the past.
This isn't that surprising coming from the CEO of Total. The French oil giant has enormous exposure to OPEC countries. It has no footprint in North America, none.
Still, it's hard to wish lower oil prices away. The market is dealing with huge oversupply.
But it's unlikely OPEC is going to step into the market in a big way, at least not now. I say this because it doesn't look like oil prices are low enough for them to support prices now. If they act now, everyone will say, see I told you so, these guys always step into bail us out.
Besides, $80 oil is ample for most oil companies to still make—and spend—money.
I noted Tuesday that traders have come to accept that markets are almost invariably up during the two days leading up to an FOMC announcement. My informal trader poll indicates the vast majority believe the Fed will end QE3 and leave in place its statement that interest rates will remain low "for a considerable period."
They point to recent comments from New York Fed President William Dudley and Chicago Fed President Charles Evans, who have mentioned below-target inflation as a near-term risk, which would argue for continuing low rates.
That might point to a selloff right after the Fed announcement. That likely will happen, but again most traders seem to feel any dip will be short-lived.
It's a very quiet rally but breadth is 3-to-1 positive. Why the rally? This one is pretty simple: the market tends to rally in the two days ahead of a Fed meeting.
I know, it's ridiculous, but it's embedded in trader lore.
Especially under these circumstances. Traders believe in the Fed put. They believe the Fed will end QE, they will say the economy continues to improve, but they will keep the phrase that rates will remain low "for a considerable period." They will reiterate everything is data dependent.
So, slow growth and a Fed put is a recipe for higher prices.
There's another factor: after the drubbing that many hedge funds took in September-October, hedges are getting taken off and net exposure is increasing again.
Look at oil stocks, which should be flat given that oil is showing no signs of rallying. But the main oil services ETF (OIH) just took out yesterday's opening to the upside. The commodity may be flat, but they are buying the stocks.
There are lots of earnings again today, with several companies raising guidance and continuing warnings in retail land.
Sherwin Williams reported a modest beat on the bottom line, and turned in revenues that were roughly in line with expectations. The remodeling business continues to hum along, and the paint stores group—which accounts for 60 percent of sales—saw revenues increase 20 percent. The company raised full-year 2014 guidance modestly.
Parker Hannifin is another classic multi-industry company whose businesses include fluid power systems, aerospace components, refrigeration and air-conditioning components. With about 40 percent of sales outside the U.S., the company beat and raised the low end of its full-year guidance. That's notable because the current quarter is the first of its fiscal year.
Truck engine maker Cummins reported earnings above expectations, with revenue also beating analyst forecasts. Stronger demand in North America, Europe and China helped offset weakness in the Brazilian market. The company is returning 50 percent of its operating cash flow to shareholders through dividends and share repurchase programs.
West Texas Intermediate crude oil did drop below $80 this morning, and energy stocks dragged the market down at the open, but stocks came back as oil bounced back over $80.
Much of the drop was attributed to Goldman Sachs' cutting its West Texas Intermediate Crude target to $75 from $90.
Wouldn't it be amusing if Goldman called the bottom in oil?
Amusing, but not likely.
Oceans of ink are being expended trying to figure out when shale plays will become economically unfeasible, but one thing's for sure: now that oil has dropped into the $70's, people are getting nervous.
Read More The bad news about below $80 oil
A Citi report a couple weeks ago says "full-cycle" costs for new shale plays are in the $70-$80 range, implying that many plays become unfeasible in this range. A JPMorgan report on Friday said "Current estimates suggest that investment activity would not be much affected until the price of crude oil got down to about $70 per barrel." In other words, they both agree we are getting into a sensitive area in the $70's.
Oil dropped below $80 per barrel on Monday morning, with important implications for production and jobs.
The most important issue for the markets is oil that dips below $80. Today, Goldman Sachs cut its West Texas Intermediate Crude target to $75 from $90. The investment bank also cut Brent crude to $85 from $100.
A few weeks ago Citi put out a report noting that the "full-cycle" costs (land, infrastructure, well drilling and operating costs) for many new shale plays is in the $70 to $80 range. That means that we are entering the area where some new shale plays will become unfeasible.
This has a bigger impact than just lower oil gas prices. Obviously, a lower gas price is good news. The bad news is the potential impact this could have on the other side of the ledger: jobs. The shale oil boom has been a significant help for the jobs market in the United States. A reduction in new drilling could have a significant impact on the booming energy industry.
Many of you have asked me when the oil companies are going to cut production and capital expenditures in light of weak oil prices. We seem to have our answer: not yet. But there is clearly some nervousness and there is already talk of belt-tightening.
Cabot Oil & Gas (COG), very big in the Marcellus and Eagle Ford shale, this morning not only said they were not cutting, but that Q4 production would be increasing. They also reiterated 2015 production growth targets of 20 to 30 percent, though they are dropping one drilling rig in the Marcellus shale. Moreover, 2015 capital expenditure guidance of $1.53 to $1.63 billion is just slightly below street consensus.
Sure doesn't sound like much belt-tightening, but these numbers are pretty optimistic. It's very clear that the big E&P firms, as well as the oil drillers that are dependent on the capital expenditures from the E&P firms, are betting that oil prices will rise, or at least stop dropping.
COG, for example, is assuming oil will average $88 a barrel in 2015, a far cry from the $80 it is currently trading at.
If you look at the earnings estimates for the drillers, and many of the E&P companies...they are being slashed. Analysts, for once, are not waiting. They have been cutting estimates since oil started heading south several weeks ago.
This has broader implications for the markets. All those sell-side strategists who are declaring that 2015 will see another year of roughly 10 percent EPS growth may have to readjust that opinion if capital expenditures in the oil business come down significantly.
My bet: highly likely West Texas Intermediate (WTI) will drift into the $70's. If that happens...and it stays there for a few months...there is no doubt we will hear about lower production levels...and lower capital expenditures...from the E&P firms during the next earnings period in January.
One thing to watch for: the canary in the coal mind will be private equity investment, which has led a lot of these shale plays. Private equity has been a massive investor in these shale plays. If that slows down, that will tell you there is an issue.
One final point: some of these drillers are paying out real dividends. Diamond Offshore (DO) now has an 8 percent dividend yield! That is supportive of the stock price.
Today's rally: good earnings, best economy in the world and money is piling into the U.S. market.
News that a New York City doctor who had been treating Ebola patients in West Africa had been taken to a New York City hospital with a high fever knocked about 80 points off of the Dow's 300-point rally.
It's a good reminder that concerns about Ebola have not gone away. But it's also a sign that the market may be becoming a bit more nuanced in its reaction to Ebola stories.
Let's face it: if this story would have happened two weeks ago, with the Dow up 300 points, I bet the Dow would have dropped 200 points, not 80 points, on this news.
Let's get back to the really...what's up with that?
A number of companies came out with strong earnings this morning, and look what lower oil prices do to company profits.
Want to see what lower oil prices do to an oil company's profits? Occidental Petroleum reported earnings down 21 percent from the same period a year ago, although earnings per share of $1.55 were roughly in line with expectations of $1.57. Revenue was down 7 percent, even though average daily production was up.
Want to see what lower oil prices do to an airline company's profits? United Continental's quarterly profit surged about 82 percent. That's right, 82 percent. Earnings on a per share basis were $2.75 for the quarter, compared with $1.51 for the same period last year. Fuel costs are 20 percent to 30 percent of an airline's cost. Some of the profit growth is obviously due to constrained capacity, but you get the point.
The same goes for American Airlines: $1.04 per share for the same period last year compared with $1.66 this quarter.
While much of the focus on the stock market's drop concerns the incident in Canada, another development is also weighing on stocks: oil has renewed its decline, which was a part of the market's drop last week.
The catalyst today occurred at 10:30 AM ET, when the Department of Energy (DOE) reported a big build in oil inventories. West Texas Intermediate crude oil immediately went from roughly $82.50 to $81.70. Although it recovered its losses in the next hour, it then dropped again around noon ET.
It's unlikely there is a relationship between the Canadian headlines and oil dropping. However, it is clear that the decline in oil last week was a major issue for stocks. Although oil dropping is good for the U.S.economy, the decline became a proxy for deflation and slowing global demand in general, and so was viewed with some concern.
Oil settled at the close at 2:30 ET at $80.52, the lowest level since June 2012, but has drifted even lower in electronic trading after the close.
Rohit Bansal and Jason Gross had been friends for years, both having worked at the N.Y. Fed. Now both are out of jobs.
Humbled bond manager Bill Gross just got a vote of confidence from one of the most successful investors of all time.
The bank is in talks with buyers about selling its embattled metal warehousing business.