Bounce in Oil and Profit-Taking in Transport Stocks Outweigh Fundamentals Today

12/01/2014 6:23 pm EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Bad news on Black Friday sales and the fact that oil is showing a snapback rally had traders taking profits today, but MoneyShow’s Jim Jubak doesn’t think it’s at all clear that any of this indicates weakness in the US economy.

For today, at least, bad news on Black Friday sales has trumped good news on US manufacturing. 

As of the close in New York today, the Dow Jones Industrial Average was off 0.29% and the Standard & Poor’s 500 Index (SPX) was down 0.68%.

Of course, it didn’t help US stocks that oil is showing a snapback rally today—that has sent the fuel-dependent stocks in the Dow Transportation Index lower by 2.71%—as traders take profits in industries such as airlines.

And it hasn’t helped that the latest data from China’s manufacturing sector show a further drop in activity.

The Black Friday problem is pretty simple: Data so far shows that sales online and in stores for the Thanksgiving shopping weekend dropped 11% in 2014 from last year’s $57.4 billion. Even Internet sales took a dive with the average shopper spending $159.55 with online retailers, down 10.2% from 2013.

I suspect that if the market hadn’t been so strong in November, we’d be seeing less selling on this news today. After all, it’s not at all clear that the data indicates a weakness in the US economy. It’s quite possible that Black Friday—the big shopping day after Thanksgiving—has simply declined as a draw as more stores start their sales earlier. (It’s also possible, of course, that consumers held off in the expectation that they’d see even bigger sales as we get closer to the Christmas shopping period.) The number of people shopping or planning to shop over the four-day weekend fell 5.2% from 2013, according to the National Retail Federation.

With profit taking an attractive short-term strategy, even a strong Purchasing Managers’ Index for manufacturing wasn’t enough to move the market higher. For November, the index at 58.7 was little changed from a 59 in October that was the strongest level since April 2011. (Which made November’s reading the second strongest since April 2011.)

The news wasn’t nearly as good from China, where, for November, the official Purchasing Managers’ Index for manufacturing dropped to 50.3. That was below the 50.5 projected by economists surveyed by Bloomberg and brought manufacturing activity close to the 50 level in this index that separates growth from contraction.

Oil prices danced to their own tune—ignoring the slowdown in China, for example—as oil bounced back from last week’s big slump on a decision by OPEC not to cut production. The US benchmark West Texas Intermediate was up 4.85% as of the close in New York and the European Benchmark Brent crude rose 3.96%.  With oil prices bouncing back, traders took profits in transportation stocks that had rallied on the drop in fuel prices. The drop in the Dow Jones Transportation Index was the most since October 15 and 17 of the 20 companies in the index were down on the day.

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