Crude Crashes Bulls' Party

After making headlines and dictating the action on Wall Street this year, oil wasn't going to be left out of the year-end party. And, back above $60 a barrel Monday, the recently low-flying commodity looks ready to play the role of crasher.

With winter finally felt across the Northeast, crude futures topped the psychologically key $60 level on Monday, before settling at $59.92 per barrel. Other fuels also rose, with heating oil adding 2 cents to $1.79 a gallon and natural gas rising 18 cents to $13.75 per million British thermal units.

The strength was enough to depress sentiment for stocks, weakening a year-end rally that already began to show signs of fatigue last week. Exxon Mobil's (XOM Quote) 0.7% gain was not enough to lift the Dow Jones Industrial Average out of the red. It finished down 42.50 points, or 0.4%, to 10,835.

The S&P 500 index fell 3 points, or 0.2%, to 1262. The Nasdaq Composite also dropped 15.7 points, or 0.7%, to 2257.6, unable to find solace from Banc of America lifting its price target on Google (GOOG Quote).

Weakness in financials such as AIG (AIG Quote), American Express (AXP Quote)and J.P. Morgan (JPM Quote) also weighed on blue chips.

Many financial stocks took a hit as long bond yields rose. The benchmark 10-year Treasury bond fell 13/32 in price while its yield, which moves inversely to price, rose to 4.56%. The weakness in bonds followed the nonmanufacturing survey by the Institute for Supply Management, which confirmed the strong economic outlook implied in other recent data.

The battle between financials and energy may very well set the tone for the rest of December. As mentioned here, rising long-bond yields (and/or a flattening yield curve) could start weighing more on financials, and the broader market, in the near term. The financial sector has the biggest influence on the S&P 500, accounting for more than 20% of its market capitalization.