MarketView for November 12

Summary

The Dow Jones Industrial Average and the S&P 500 indexes ended the day on Tuesday slightly lower after rising bond yields increased debate over how soon the Federal Reserve would start trimming its stimulus program. To that end, Fed officials offered diverging views, adding to the uncertainty about the outlook for the Fed's easy-money policies.

The day's decline followed two days of record high closes for the Dow. Tuesday's retreat was led by the S&P 500's financial, energy and utility sectors. A 2.2 percent drop in domestic oil futures prices hurt energy names like Chevron, which ended the day down 0.9 percent to close at $120.

During the day’s trading session, bond yields hit their highest level since mid-September, though that level is still lower than a month ago.

Some market watchers have begun to speculate that the Fed could begin to scale back on stimulus as early as December after the Labor Department said on Friday that the U.S. economy created 204,000 jobs in October.

On Tuesday, Minneapolis Fed Bank President Narayana Kocherlakota and Atlanta Fed President Dennis Lockhart said monetary policy should remain accommodative. Neither is a voting member of the Fed's policy-setting committee.

In contrast, Dallas Fed President Richard Fisher told CNBC that the Fed's program of buying $85 billion in bonds every month to stimulate the economy cannot continue forever.

But the key Fed comments this week may come during a Senate Banking Committee confirmation hearing for Janet Yellen, who has been nominated to succeed Ben Bernanke as Fed chairman. Yellen has been a big supporter of the Fed's current policies.

Among the day's more volatile stocks, US Airways gained 1.1 percent to close at $23.52, reversing earlier losses. It and American Airlines agreed to give up landing spots and gates to low-cost carriers at several domestic airports to win Justice Department approval for their proposed merger. Stocks of several low-cost air carriers rose as a result. JetBlue Airways ended the day up 6.1 percent to close at $8.16, while Southwest Airlines closed up 1.2 percent to end the day at $18.03.

Sarepta Therapeutics was one of the day's largest losers, falling 64 percent to $13.16 after the FDA said the company's drug to treat a rare muscle disorder needed further testing. It was one of the Nasdaq's most active stocks.

In the utility sector, shares of NRG Energy fell 3.5 percent to $27.06 and ranked among the S&P 500's largest percentage decliners after the power company reported results and adjusted its earnings outlook.

Dish Network posted quarterly results that exceeded Street expectations. The company said it added 35,000 pay-tv subscribers, far exceeding expectations. The stock rose 6 percent to end the day at $50.35.

Among other results, D.R. Horton rose 4.7 percent to close at $18.91, making it the S&P 500's largest percentage gainer. The company had indicated that home sales were higher during October.

Shares of News Corp fell 1.5 percent to $17.15, a day after it reported a steeper-than-expected decline of 3 percent in revenue.

Macy's ended the day down 1.6 percent at $46.33. Cisco ended the day up1.2 percent, at $23.73. Both are scheduled to report results on Wednesday, with Macy's numbers due before the opening bell and Cisco's after the close.

Shares of Starbucks fell after the bell, declining 1.4 percent to $79.50. The company reported late Tuesday that an arbitrator had concluded that it must pay Kraft Foods $2.23 billion in damages after the coffee chain's early termination of the companies' grocery deal. Shares of Kraft gained 0.6 percent to $52.25 after the bell.

Volume was lighter than usual for a second day, totaling about 5.8 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, below the five-day average closing volume of about 6.4 billion, according to BATS exchange data.

U.S. To Become Top Oil Producer in 2015

The United States will become the world's top oil producer in 2015, the International Energy Agency (IEA) said on Tuesday, bringing Washington closer to energy self-sufficiency and reducing the need for OPEC supply.

However, by 2020, the oilfields of Texas and North Dakota will be past their prime and the Middle East will regain its dominance - especially as a supplier to Asia, the IEA said on Tuesday.

The increase in shale oil in the United States has reversed a decline in its oil output and the IEA predicted in its 2012 World Energy Outlook that the U.S. would surpass Riyadh as top producer in 2017. Introducing this year's outlook at a news conference in London on Tuesday, IEA Chief Economist Fatih Birol said the agency now expects the re-ordering earlier. "We expect in 2015 the U.S. to be the largest oil producer in the world," he said.

"We see two chapters in the oil markets," he told Reuters in an interview. "Up to 2020, we expect the light, tight oil to increase - I would call it a surge. And due to the increase coming from Brazil, the need for Middle East oil in the next few years will definitely be less."

"But due to the limited resource base, it is going to plateau and decline. After 2020 there will be a major dominance of Middle East oil."

Oil prices would continue higher, the IEA said, and spur development of unconventional resources such as the light, tight oil that has fueled the U.S. oil boom, oil sands in Canada, deep water production in Brazil and natural gas liquids.

The average crude import price of IEA members will climb steadily to $128 a barrel in 2012 terms by 2035 - up $3 from 2012's outlook. The nominal price by 2035 will be $216, similar to last year's assumption.

Other nations are unlikely to match the success of the United States in tapping shale, the IEA said.

While tight oil output is set to soar in the next few years, the IEA said the world was not "on the cusp of a new era of oil abundance" and repeated that investment in new supply needed to be kept up to avert any future supply crunch.

By the mid-2020s, non-OPEC production will fall back and countries in the Middle East - home to core members of OPEC will provide most of the increase in global supply.

Birol said it was essential that investments continue to be made in the plentiful, low-cost resources of the Middle East in order to meet growing demand from Asia. "The Middle East is and will remain the heart of the global oil industry for many years to come," he told Reuters. "Giving the wrong signal to Middle East producers may well delay investment. If we want Middle East oil in 2020, the investments need to be made by now."

Rising U.S. tight oil production is for now helping to meet growing demand, which the IEA forecasts will reach 101 million barrels per day (bpd) in 2035, up from 86.7 million bpd in 2011 and up slightly from 99.7 million bpd expected last year.

"Shale oil is very good news for the United States and for the world. But the demand is in Asia," Birol said. "First China and then after 2020, it will be driven by India. Therefore we need Middle East oil for the Asian demand growth."

China is due to overtake the United States as the largest oil-consuming country and Middle East oil consumption is expected to surpass that of the European Union, both around 2030, the IEA said. India is forecast to become the largest single source of global oil demand growth after 2020. The IEA also said that up to 10 million bpd of global oil refining capacity was at risk as global refining centers were relocating closer to Asia.

The share of the United States in global energy-intensive industries - chemicals, aluminum, cement, iron, steel, paper, glass and oil refining - will increase slightly thanks to cheaper energy. By contrast, the EU and Japan will lose one third of their current share.