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Skyrocketing Oil Prices Weigh On Wall Street

wallstreet nov02 16sep19 lt

Reflecting concerns about the impact of skyrocketing oil prices, stocks saw moderate weakness during trading on Monday. The major averages all moved to the downside, partly offsetting the strong gains posted last week.

The major averages climbed off their worst levels of the day but still closed in negative territory. The Dow slid 142.70 points or 0.5 percent to 27,076.82, the Nasdaq fell 23.17 points or 0.3 percent to 8,153.54 and the S&P 500 dropped 9.43 points or 0.3 percent to 2,997.96.

The weakness on Wall Street came amid a spike by the price of crude oil, with brent crude futures showing the biggest intraday jump on record after a coordinated drone attack on Saudi Arabia's oil industry.

Crude for October delivery soared $8.05 to $62.90 a barrel, raising concerns about the impact higher energy prices could have on the already fragile global economy.

The jump in oil prices comes as attacks on an oil processing facility at Abqaiq and the nearby Khurais oil field cut Saudi Arabia's daily crude oil output in half.

Responding to the news, President Donald Trump said he has authorized the release of oil from the Strategic Petroleum Reserve if necessary to keep the markets well supplied.

Trump also tweeted the U.S. is "locked and loaded" to the respond to the attacks, with Secretary of State Mike Pompeo pointing the finger at Iran.

A potential military conflict between the U.S. and Iran would weigh on a global economy that is already being dragged down by the U.S.-China trade war.

On the U.S. economic front, the Federal Reserve Bank of New York released a report showing New York-area manufacturing activity was little changed in the month of September.

The New York Fed said its general business conditions index dipped to 2.0 in September from 4.8 in August, although a positive reading still indicates an increase in regional manufacturing activity. Economists had expected the index to edge down to 4.0.

Later this week, the Federal Reserve is scheduled to announce its latest monetary policy decision, with the central bank widely expected to cut interest rates by another 25 basis points.

Trump has been pressuring the Fed for a larger rate cut, pointing to the stimulus announced by other central banks around the world.

"The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries," Trump tweeted.

He added, "They can't believe how lucky they are that Jay Powell & the Fed don't have a clue. And now, on top of it all, the Oil hit. Big Interest Rate Drop, Stimulus!"

Sector News

Chemical stocks showed a significant move to the downside on the day, dragging the S&P Chemical Sector Index down by 1.6 percent. The index pulled back after ending last Friday's trading at its best closing level in well over a month.

Retail and tobacco stocks also saw considerable weakness, with the Dow Jones U.S. Retail Index and the NYSE Arca Tobacco Index both falling by 1.3 percent.

On the other hand, energy stocks saw substantial strength on the day, benefiting from the sharp increase by the price of crude oil.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index surged up by 8.8 percent, the NYSE Arca Natural Gas Index spiked by 6.5 percent and the NYSE Arca Oil Index jumped by 3.8 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Monday, with the Japanese markets closed for a holiday. Hone Kong's Hang Seng Index slid by 0.8 percent, while South Korea's Kospi climbed by 0.6 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the French CAC 40 Index slumped by 0.9 percent, the German DAX Index and the U.K.'s FTSE 100 Index fell by 0.7 percent and 0.6 percent, respectively.

In the bond market, treasuries regained ground after moving sharply lower over the past few sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 6.2 basis points to 1.841 percent.

Looking Ahead

News out of the Middle East may continue to attract attention on Tuesday, potentially overshadowing reports on industrial production and homebuilder confidence.

Trading activity may remain somewhat subdued, however, as traders await the Fed's decision and accompanying statement on Wednesday.

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