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By Jason Stipp and Jeremy Glaser | 12-11-2015 12:00 AM

Lower Valuations, But Still Many Risks as Market Sells Off

For investors who demand more certainty in their stock picks, the market is offering few bargains today, even despite recent losses.

Jason Stipp: I'm Jason Stipp for Morningstar. Markets are selling off again on Friday following a spate of volatility. Here to discuss is Morningstar markets editor Jeremy Glaser. Jeremy, thanks for being here.

Jeremy Glaser: You're welcome.

Stipp: Markets are upset again on Friday. The proximate cause seems to be increasing weakness in crude oil. However, we are seeing weakness across the board. It's not just energy stocks that are selling off. So why is it that energy weakness is potentially causing upset across the market?

Glaser: It's broad based, but the real pain is being felt in energy and basic materials. That's where you're seeing a lot of the big declines. And that is because of lower oil prices, as you mentioned. Oil prices keep falling because of the supply-demand imbalance. This is not a new story; we continue to see evidence that there's a gap between the amount of oil that the world needs right now, given slowing economies across a lot of different areas, and the amount of supply that's still being put out there both on conventional oil--OPEC has not cut production and they keep sticking by their current production targets--and then the prospect of things like Iranian oil coming on the market. It makes people think this imbalance could last for quite some time. That's bringing prices down. We really haven't seen that point yet where the low prices are creating enough demand to bring the market back to a stabilized point.

I think it's also important to think about the Fed right now. I'm not someone who thinks that every single market move is driven by what's happening in the Federal Reserve or people talking about the Federal Reserve. But with the Fed set to raise rates next week, I think that's certainly on a lot of investors' minds. Even if a rate increase seems pretty much baked in, what is that path of increases going to look like? What's going to happen to the yield curve? There's still a lot of question marks out there. And I think that uncertainty could be weighing as well.

It's also important to point out that high-yield bonds are selling off considerably today as well. Again, some of that's energy related. Energy has an outsized position in high yield, as these companies have been issuing a lot of corporate debt in order to fund some of their expansion projects. And also the liquidation of the Third Avenue Fund--something that many people didn't see coming--is raising concerns about liquidity in the high-yield market and liquidity in a bunch of different spaces, and that's weighing on the marketplace today as well.

Stipp: You mentioned that energy is taking the brunt of the hit in the market. Within energy, though, what's getting hammered right now?

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