They are clobbering the darned thing and we don't even know why. Oh sure, we can round up the usual suspects, but I think we have a big hangover from the Alibaba (BABA) party. The market is simply ripe for a pullback, due to the endless gains we have seen.
The phrase ''more sellers than buyers'' comes to mind on days like today, when there seems to be no buyers for most merchandise. We have almost no earnings to speak of, and the ones we do are not big enough to matter. But let's at least go over some of the proximate causes of the weakness, so we can get our arms around them and brace for more selling, after a real halcyon run.
First, the market was down big before it even opened, and the reasons are something we have to get used to. Let's tick them down. While the averages have been going up for some time, a difficult rotation has given us these positives. Investors have been fleeing certain sectors for some time, and we saw that exacerbated heavily today.
This morning, when I woke at 4:30 a.m. EDT ¿ I slept in to celebrate the Eagles victory -- I was astounded to see comments from the Chinese government about how it was content with the slowing economy and may not feel the need to do more to stimulate the economy. Last week, the Chinese cut the equivalent of their fed funds rate and injected huge reserves, both of which were very positive for their economy. However, no one seemed to have noticed. All we have heard is that the Chinese are done with stimulating for now.
The Chinese government's comments made perfect sense. You can't expect the Chinese to stimulate on top of last week's stimulus. We would never tolerate that from our Fed. But the idea that China is happy with this level of economic growth is antithetical to all we know about the Chinese. If the Chinese government isn't ''dismayed,'' ''worried'' or even ''concerned'' with seven percent growth, then the ripple effects are mighty and will be felt around the world.
That's exactly what happened. I saw it first in the collapse of copper, and believe me, a $0.05 decline in copper is a collapse. This is an extraordinary move that says if the Chinese are happy where growth is now, there's little hope for a copper pick-up.
Copper's decline, in turn, has led to still one more selloff in the commodity portion of the stock market. You can't have metals and mining going down with equipment going down. This includes DJIA member stock Caterpillar (CAT), which has become the very definition of a sale if China is smug in its weakness.
Frankly, some of these commodity stocks are getting down to absurd levels, and others have been down for multiple weeks a time. There are still no buyers whatsoever, and even the highest-yielding stocks are mercilessly slaughtered.
The mineral complex is not so huge that it can hurt the overall market, but the oil stocks can. It seems ridiculous to emphasize China to this extent. The U.S. is so much more important to a large part of the U.S. economy, but not on the raw materials consumption side. That's China. We have become conditioned to believe that a decline in China means a decline in everything related to materials demand. One of those key materials is oil.
I have been watching the decline of the oil complex for weeks, and it's become quite unnerving. It started with the big players, but it has extended to all of my favorite stocks. All of those stocks require that oil stays high, because the cost of U.S. drilling would cause profit margins to be impinged soon. That's dreadful. When oil failed to hold $92, the group took another leg down.
It's funny. I am tempted to tell you not to worry, because I don't think oil will go much lower. But I didn't think that copper or corn would go this low. Oil is not just trading on China. It's trading on Europe, too, which is really starting to slide. Our stocks may not be all connected, but our natural resources sure are. When you read about weakness in Europe, that's another nail in the coffin of $91 per-barrel oil.
Plus, we are sowing the seeds of our own oil stock demise by finding so much of the stuff and not being able to export it. Our oil is trapped here, causing further decline in the price.
I am not a huge bear on the group, but it is tough to be as bullish, especially because the dollar has become so strong. That translates into a weaker oil price, as you can get more oil with each dollar. I am heartened that we are still seeing plenty of takeover activity in the oil world -- for example, Siemens (SI) bought Dresser Rand (DRC) for $7.6 billion in cash this weekend. I remember that before shale oil was being extricated, this equipment maker and servicer couldn't be given away. Now, this kind of company is being snapped up left and right. National Oil Well Varco (NOV) sure looks tempting, as does FMC Technologies (FTI), but unless they are taken over they will go lower.
Long-time favorite Continental Resources (CLR) is more worrisome. After an analyst meeting last week that wasn't nearly as negative as it had been made out to be, CLR failed to lift. The simple fact is that if oil were to rally, it would, too. But suddenly, oil seems to be in if it is some sort of real and unnerving downturn.
Now we know that oil means a lower price of gasoline, and that should help the American consumer. But as I flagged last week in the game plan, I was very concerned about existing home sales -- the kinds of homes that you fix up when you buy. Sure enough, sales declined for the first time in five months, creating another vortex lower that took down many retailers.
I want to step back for a second. We have had a gigantic run. You can argue that China is a weak excuse for our stocks to go down, especially when our companies are so sought after. Dresser is not the only company that has been acquired. We saw a huge, $17 billion bid for Sigma Aldrich (SIAL). It's a high quality life sciences company that's basically a providers of all things chemistry. The bid was launched by the German Merck (MRK), right on top of a separate bid that was also huge: Friedrichshafen, also a German company, made a bid for auto parts maker TRW Automotive (TRW). Of course, those don't save the S&P futures, which are far more reflective of an inability of central bankers around the world to generate growth.
The euphoria connected with Alibaba does product its own skepticism. Any real outward enthusiasm for stocks does bring out a sort of parental ''when you play this much you know someone's going to get hurt'' mentality. That someone who gets hurt is the person who owns stocks.
Bottom line, it is still business as usual. We are dealing with an Alibaba-induced hangover, overlaid by Chinese willingness to accept slower growth that will require fewer imports. It comes at a time when we aren't ready for it, and when we still think that commodity declines are bad news. Ultimately, as consumers, we want cheaper goods. I say, let it come down and buy the good ones, but there's no need to be aggressive. We aren't going to change the course of these commodities overnight, and they are now in charge of this market.