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The Dow has had a triple-digit move every day in December, and it has lost 280 points, or 1.6 percent since this week began. U.S. crude futures, as of Tuesday's settle, lost 11 percent since OPEC Friday raised its output quota and left its market-based pricing policy in place. The sell-off in crude has weighed on other commodities as well as stocks.
Since Dec. 1, oil is down about 10.4 percent, while the S&P is off 1.9 percent, but without energy stocks it would be down 1.2 percent, according to S&P/Capital IQ.
Analysts had expected this week to be relatively quiet with traders awaiting the Fed's rate decision next week. The Fed is expected to raise its fed funds target rate by 0.25 percent, in the first rate hike in nine years.
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"I wouldn't have thought we'd have seen much directionally in advance of the Fed meeting. It's all but certain the Fed is going to move off the zero bound. Just what is going to accompany that announcement, we don't know. That much uncertainty I would have thought would have been enough to keep investors sitting on their hands," said Mark Luschini, chief investment strategist at Janney Montgomery.
Already, traders have moved past speculating about the Fed's first rate hike, and are gaming when the next one will be. The Fed's economic and interest rate forecasts should provide some clues when they are released with the Fed decision Dec. 16.
"I think the waiting for Fed game is clearly an overarching theme for the next week and between now and then, it's oil and some mid-level data points that will be interesting but not going to do anything to dissuade what the Fed policy will be," Luschini said.
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Data expected Wednesday includes wholesale trade at 10 a.m. The Treasury auctions $21 billion in reopened 10-year notes at 1 p.m. ET.
But traders in all markets will be watching the reaction to the oil inventory data. West Texas Intermediate futures for January settled slightly lower Tuesday at $37.51 after dipping to $36.64 earlier. Brent, the international bench mark fell to $40.26 per barrel.
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"There was some suspicion — not necessarily one we shared — that the oil market was trying to hammer out a rough bottom around $40 a barrel. Obviously with the meeting in Vienna, we found that wasn't the case," said Luschini.
John Kilduff of Again Capital said that after the API data, he now expects a build of 300,000 or 400,000 barrels. The API reported that supplies fell by 1.9 million barrels for the week ending Dec. 4, while analysts had expected a build. That sent oil slightly higher in late trading.
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"We're due for a correction or short covering rally anyway," said Kilduff. He previously had expected a build of 1.3 million, before the API data. "It will still be up, just not as much as I was thinking."
There are a few earnings Wednesday, including Lululemon Athletica, Vera Bradley and Korn/Ferry before the bell. Men's Wearhouse reports after the market close.
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