Market Talk

Stocks see selling with some conviction (NYSE listed volume more than 5.7 billion shares)  for the second day in a row, spurred on by fear that soaring oil prices will derail the fragile economic recovery.

Nymex crude briefly hit $100/barrel for first time in more than two years, sending shivers through industrial stocks, and stocks of companies most sensitive to discretionary consumer spending, like Tiffany and Coach.

H-P shares tumble almost 10% after disappointing earnings and outlook, and drop accounts for roughly 35 points of Dow Industrials’ decline.

First back-to-back triple-digit drop for DJIA since early June, average falls 107.01 to 12105.78, and Nasdaq Comp slides 33.43 to 2722.99. S&P 500 ends 8.04 lower at 1307.40.

No real sign that the source of the market’s current angst — unrest in North Africa and Middle East — is about to abate, so oil prices (instead of the Fed) may be calling the shots here for a bit.

Weekly jobless claims, January durable goods orders and new home sales will be tomorrow’s economic reports of interest. On the earnings calendar, GM, Target, Sears and Kohl’s all report before the open; AIG reports after the close.

Watching crude oil futures climb above $100/barrel this afternoon got us talking in the newsroom about what happened to the economy the last time oil bubbled up to these levels in 2008.

That led us to look at the BLS releases on monthly nonfarm payrolls, and then at the eventual revisions to each individual month in ’08 and early ’09. While everyone knows the job losses in aggregate were revised much higher, it’s pretty striking to look back and see the wide margin of difference between the original numbers and the revisions.

For example, the BLS release for July ’08 payrolls (when crude oil peaked above $145/barrel) mentioned ever-so-casually that “nonfarm payroll employment continued to trend down in July,” originally reporting 51,000 jobs lost.

The revised decline? Down 231,000.

In reporting the August numbers, BLS stuck with the “trend down” phrasing as the economy was thought to have lost 84,000 jobs. The real drop was revised to 267,000. September’s decline was originally pegged at 159,000, but really fell 434,000. Ouch.

So, in 2008′s third-quarter, the US economy shed 932,000 jobs, when it was thought at the time we’d “only” lost less than one-third of that amount.

We aren’t the first to make this point, but these examples make it pretty clear that all the anticipation and hyperventilation over the fresh monthly data is a waste. The numbers will be revised, and revised again, and there’s a good chance the final numbers bear little resemblance to the ones initially reported.

Something to keep in mind a week from Friday, when the February jobs report comes out.

(Photo courtesy of Library of Congress.)

Things are looking chaotic out there. Libya is being torn in half, there’s fighting in the streets in Greece – again. Crude oil prices are spiking, stocks are tanking. The fear underlying all the selling in the market, all the moves into safe havens, is that the crude oil spike eats into a weak global recovery and tips the economy back into recession.

It certainly could happen. There’s a disruption right now to oil flows, given what looks like a civil war in Libya. But the loss of Libyan production can be made up by other nations, primarily Saudi Arabia, which is sitting on the world’s biggest reserves under its sands.

For this moment, the crude-oil spike doesn’t appear to be sufficient to derail the economy. Painful, yes, annoying, without a doubt. But not enough to tank the economy. Much depends upon what happens from here on out, of course. If the revolutionary fervor reaches Saudi Arabia, for instance, and shuts down the oil fields there, well then all bets are off. You’d see a super-spike. So far, that doesn’t appear likely. But again, the Jasmine Revolution is moving with quite a bit of speed.

Capital Economics’ Julian Jessop puts it into some perspective:

The turmoil in the Middle East has prompted a chorus of warnings that the world economy could eventually be dragged back into recession if the price of oil continues to climb relentlessly (well yes it could, obviously). But while we continue to expect global growth to be slower this year than in 2010, and slower still in 2012, we do not expect the oil price to be pivotal.

Continue reading…

Newswires’ Veronica Dagher interviews Charles Schwab’s Liz Ann Sonders about inflation, its effect on the economy and whether the Fed’s going to get in front of it in time to arrest its rise.

We brought Newswires’ Tomi Kilgore onto today’s Markets Hub to break down the technical picture for the stock market. The upshot is that stocks are still strong technically — for now, right now.

Of course, if you’re watching the Tape here, that strength is ebbing steadily. Keep your eyes open.

Addendum: The S&P 500 broke under the 1300 mark, not long after crude oil broke over the $100/barrel mark (at least the much watched Nymex benchmark; the Brent benchmark has been over $100/barrel for a while.) Things are moving fast.

I seem to recall that one of the selling points for the government bailouts in the wake of the Panic of 2008 was that the private sector had to be saved if we were ever going to create jobs again in this country. It was sold as that we weren’t so much bailout out a bunch of private players that wreaked havoc with the economy so much as we were preserving a system that would help repair the damage done to the citizenry. That we were, in effect, bailing out ourselves.

I think we can close the book on that one as a big fat lie. The private sector has done very little, especially considering how much they were given, to get the jobs market back to health. Hiring’s going nowhere and wages are going nowhere. But corporate profits have soared. Meanwhile, with the government picking up the slack for what the private sector isn’t doing, federal debt has soared. But GE can work the tax code to the point where it effectively pays no corporate tax.

Gluskin Sheff’s David Rosenberg lays it out for you:

The U.S. corporate sector gets bailed out by the taxpayer in unprecedented fashion, to only then see said corporate sector experience a surge in profits without having to increase the size of the workforce very much, if at all, or increase pay to their staff so they can share in the spoils, for that matter. What the government then does is replace the business sector’s role in doling out wage increases to the working class to the point where a record 20% of personal income is now derived from federal transfers.

This is the principal cause of the U.S. deficit soaring to unprecedented heights of $1.5 trillion and it is so obvious from the latest White House budget that there is no realistic plan to redress the rising tide of fiscal red ink. But the major point here is Uncle Sam’s generosity has given the proletariat the leeway to spend, thereby helping support volume growth in the corporate sector and further widening out profit margins, which were already underpinned by declining unit labour costs. And the stock market rallies to new cycle highs. What an economy! What a market! Boom times with a 9%+ unemployment rate and a 16%+ underemployment rate.

(Photo: Library of Congress)

Higher premarket US stock futures signal that dips like yesterday’s are opportunities to step up and buy, until proven otherwise. That’s been the case for months now, and burden of proof remains on the bears.

Asian markets overnight didn’t rebound and nothing much stirring in European stocks, so vitality of a US bounce is in question. Certainly, the situation in Libya isn’t any better than it at this time yesterday, oil continues to climb.

H-P shares likely to be a drag on the DJIA — they’re off more than 9% premarket after a weaker sales outlook late yesterday. January existing home sales due at 10:00 a.m. ET.

Oil climbs above $96/barrel. S&P futures up 1.50, DJ futures up 22. Ten-year note lower, yield at 3.49%.