Markets that are not dependent upon commodities advanced modestly last week, while those that are commodity-dependent declined, some quite hard. The US market indices advanced +0.7% on average, with the Nasdaq leading at +1.7% and the S&P 500 at a more modest +0.2%. Canada’s TSX was battered by both the oil freefall and a decline in gold prices, and declined by -2.4%. Emerging markets, many of which are commodity producers, fell by -2.2%, while Developed markets gained +0.3%. DBC, the PowerShares Commodity Tracking ETF, fell -6.1% for the week. DBC tracks a composite of energy, precious metals, industrial metals and agricultural commodities.
The month of November was positive for most markets worldwide. In the US, the Dow and the S&P 500 both gained +2.5%, with only the SmallCap Russell 2000 index losing ground at -0.02%. Despite the setback in the last week of the month, Canada’s TSX managed to gain +0.9%. Emerging markets fell by -1.5% for November, but Developed markets eked out a slight gain of +0.1%. As the markets enter the final month of the year, many observers are wondering if the S&P 500 index can finish the year without 4 down days in a row. There hasn’t been a single year since 1950 without the S&P 500 experiencing at least 4 down days in a row.
US economic data included the first revision to third-quarter GDP, and it was an expectation-beating +3.9%. Coupled with the second quarter’s +4.6% rise, this represents the biggest back-to-back advances in GDP since late 2003. October durable goods and consumer spending came in lighter than expectations but still positive.
Canada’s economy grew an annualized 2.8 percent in the third quarter, faster than economists had forecast, as exports of crude oil grew and consumers bought more cars and big-ticket items. However, the rout in oil and renewed decline in precious metals are playing havoc with large segments of the Canadian economy. Oil is at a 5 year low, copper at a 5 year low, and the Bloomberg commodity index has fallen to the lowest level since May 2009. Many energy and mining company shares have fallen 10%-20% in the last three weeks.
The crash in oil prices is by far the most important global economic news. West Texas Intermediate (WTI) oil plunged below $70.00 a barrel to finish the week at $66.15 – a decline of a whopping -14% on the week, with the price having fallen over $40 since the mid-June weekly closing highs of nearly $107.00, or off about 38% in just five months.
US imports of crude oil from OPEC nations are at the lowest levels in almost 30 years, according to a Financial Times analysis of Department of Energy data, with OPEC’s share of the imports dropping to 40%, the lowest since May 1985. At its peak in 1976, OPEC represented 88% of U.S. oil imports.
The plunge in the price of oil is not universally good news, of course: Deutsche Bank warned in a study “that if oil fell to $60, there could be a 30% default rate among borrowers in the energy sector, who loaded up on debt to fund their operations and acquire new acreage in states like North Dakota.”
But it is certainly being taken as good news by retailers, who stand to gain from the increased spending power of consumers who are presumably spending a lot less at the gas pump.