Oil price drop sinks market rally
A big rally on Wall Street suddenly vanished Tuesday, the latest twist for a market dominated by sharp swings amid the coronavirus outbreak.
The S&P 500 dipped 0.2% after erasing an increase of 3.5% earlier in the day. The market’s gains faded as the price of U.S. crude oil abruptly flipped from a gain to a steep loss of more than 9%.
It dampened what had been an ebullient day for markets worldwide. European and Asian markets rallied earlier, following up on Monday’s 7% gain for the S&P 500 on encouraging signs that the coronavirus pandemic may be close to leveling off in some of the hardesthit areas of the world.
Even though economists say a punishing recession is inevitable, some investors have begun to look ahead to when economies will reopen from their medically induced coma. A peak in new infections would offer some clarity about how long the recession may last and how deep it will be.
Investors could then, finally,
envision the other side of the economic shutdown, after authorities forced businesses to halt in hopes of slowing the spread of the virus. Governments around the world are talking about pumping trillions of dollars more of aid for the economy.
Many professional investors say they have been wary of the recent upsurge and expect more volatility ahead. The S&P 500 has rallied nearly 19% since hitting a low on March 23, though it is still down 21.5% from its record set in February.
“It’s important to remember we shouldn’t overextrapolate temporary trends,” said Patrick Schaffer, global investment specialist at J.P. Morgan Private Bank.
Such concerns were borne out Tuesday, when the S&P 500 swung up, down, up, down and back up again through the day.
The S&P 500 fell 4.27 points to 2,659.41. The Dow Jones industrial average slipped 26.13 points, or 0.1%, to 22,653.86 after losing an earlier gain of 937 points. The Nasdaq composite dropped 25.98, or 0.3%, to 7,887.26.
Oil prices have been even more volatile than the stock market in recent weeks as demand has dried up for energy amid a global economy weakened by the coronavirus outbreak. Russia and Saudi Arabia have also been locked in a price war, refusing to cut production sharply even as the world is awash in excess oil.
President Trump said last week that he hopes and expects that the two sides could agree on production cutbacks, which helped prices spurt higher temporarily. But investors still aren’t convinced that a deal will be reached, and benchmark U.S. crude oil fell $2.45, or 9.4%, to settle at $23.63 per barrel. Brent crude, the international standard, fell $1.18 to $31.87 per barrel.
Its decline is another reminder of how many people are no longer driving to work, flying to meetings or heading to the store amid the economic shutdown. And the hangover could last for a while.
“It’s very hard today to envision baseball stadiums in June filled with people drinking beer and watching games,“said J.P. Morgan Private Bank’s Schaffer. “People today don’t anticipate that the economy is going to turn back on like a light switch, but rather that it will be a gradual reopening of certain parts of the economy.”
But investors have grabbed on to some glimmers of optimism.
Central banks and governments are promising huge amounts of aid to prop up the economy.
Japan’s government on Tuesday formally announced a $1 trillion package for the world’s thirdlargest economy.
In Europe, Germany’s DAX jumped 2.8%, and France’s CAC 40 rose 2.1%. The FTSE 100 in London added 2.2%. In Asia, Japan’s Nikkei 225 rose 2%, South Korea’s Kospi gained 1.8% and the Hang Seng in Hong Kong was up 2.1%.
In a signal that investors are feeling less pessimistic, they pushed the yield of the 10year Treasury up to 0.72% from 0.67% late Monday.