Crude oil prices turn higher after U.S. SPR release
U.S. stocks ended mostly higher Tuesday after a choppy day of trading that saw the technology sector under pressure, with the Dow Jones Industrial Average and S&P 500 closing with gains while the tech-heavy Nasdaq Composite index fell.
Energy shares rallied, however, as oil prices bounced despite the White House announcing the U.S. would release crude from its Strategic Petroleum Reserve in a coordinated move with other countries to try to lower the cost of gasoline.
How did stock indexes trade?
- The Dow Jones Industrial Average DJIA rose 194.55 points, or 0.6%, to close at 35,813.80.
- The S&P 500 SPX advanced 7.76 points, or 0.2%, to end at 4,690.70.
- The Nasdaq Composite COMP slid 79.62 points, or 0.5%, to finish at 15,775.14.
On Monday, the Dow Jones Industrial Average DJIA rose less than 0.1% to end at 35,619.25. The S&P 500 SPX fell 0.3% after hitting an intraday all-time high at 4,743.83 earlier in the session. The Nasdaq Composite Index COMP fell 1.3% to 15,854.76 for its biggest decline since Nov. 10.
What drove the market?
U.S. technology stocks extended their slide from the previous session as Treasury rates continued their climb.
The market may be pricing in a rise in interest rates beginning in the middle of next year, which is “not positive for long-duration assets like technology” stocks, said Wayne Wicker, chief investment officer at MissionSquare Retirement, in a phone interview Tuesday.
Monday’s late-day weakness in the stock market was tied by some analysts to expectations that Federal Reserve Chairman Jerome Powell — nominated to a second term by President Joe Biden earlier the same day — could tighten monetary policy faster than Lael Brainard, who was appointed Vice Chair but had also been in the running for the top job.
“Ultimately I don’t see how the Powell-led Fed is more hawkish today than it was last week, but we should always beware linear thinking: even the Fed can adapt and learn from the persistently high inflation,” said Neil Wilson, chief market analyst for Markets.com, in a note to clients.
“You never know, perhaps the Fed — and the White House — are starting to heed some warnings about what untethered inflation can do. In summary, you could say there has been a whiff of a hawkish tilt at the Fed in recent weeks and the administration is OK with that,” said Wilson.
The yield on the 10-year Treasury note BX:TMUBMUSD10Y rose 4 basis points Tuesday to 1.665%, after on Monday seeing its largest daily gain since November 10, according to Dow Jones Market Data.
Investors also were watching yet another resurgence of new coronavirus cases in Europe and Asia in particular, which have prompted another round of restrictions on businesses and consumers to try to limit infections.
Lockdowns can be “detrimental” to economic growth, said Wicker. “I can’t imagine that we’ll revert to that,” in the U.S., he said, “especially with booster shots coming into play.”
In economic data, a pair of surveys by IHS Markit showed U.S. businesses grew rapidly in November, even as they’re still being hampered by labor and supply shortages that are feeding the biggest burst of inflation in 31 years.
The so-called flash survey of U.S. manufacturers rose to a two-month high of 59.1 in November from 58.4 in the prior month, while a similar survey of service-oriented companies fell to a two-month low of 57 from 58.7.
“They’re both still pretty strong, even though the numbers are a little bit weaker on the services side,” said Dave Grecsek, managing director in investment strategy and research at wealth management firm Aspiriant, in a phone interview Tuesday. Any number above 50 signals expansion and figures above 55 are seen as exceptional.
Across other markets, oil futures erased losses to turn higher after the White House announced a plan to release 50 million barrels of oil from the U.S. Strategic Petroleum Reserve, or SPR, in coordination with other countries. West Texas Intermediate crude CL00 CLF22, the U.S. benchmark, rose 2.3% Tuesday to settle at $78.50 a barrel.
“It’s a big pawn game,” Wicker said of the U.S. effort to lower energy prices. Wicker said that he anticipates the move won’t have any long-term effect on the price of oil and that he continues to like energy stocks.
Energy XX:SP500EW was the S&P 500’s best-performing sector Tuesday, ending with a 3% gain, according to FactSet data. The financials sector XX:SP500EW showed the next biggest gain at about 1.6%.
Grecsek said that he likes cyclical, “value-oriented” areas of the stock market, including sectors such as financials and industrials, as they should do well under the “reflation theme.” He also expressed concern over the valuations of growth stocks.
“We’ve been saying for a while that a lot of the growth-styled equities are overvalued,” Grecsek said. The Russell 1000 Growth index RLG fell 0.4% Tuesday, compared to a gain of 0.6% for the Russell 1000 Value index RLV, according to FactSet data.
Trading is expected to thin out as the U.S. Thanksgiving Day holiday nears. U.S. markets will close Thursday for the holiday and open for a half-day on Friday.
Which companies were in focus?
- Shares of Zoom Video Communications ZM fell 14.7% after company executives detailed falling revenue on a conference call late Monday.
- Best Buy BBY shares tumbled 12.3% after the electronics retailer forecast holiday season comparable sales below expectations, though it reported a quarterly beat on the top and bottom lines.
- Abercrombie & Fitch ANF shares dropped 12.6% after the retailer’s results beat forecasts and Chief Executive Fran Horowitz spoke of “ongoing supply chain constraints,” delivery delays and higher costs.
- Shares of XPeng Inc. XPEV rallied about 8.3% after the China-based electric vehicle maker reported a wider-than-expected third-quarter loss, but revenue above forecasts and delivered an upbeat fourth-quarter outlook.
- Dollar Tree DLTR shares rose about 9.2% after the retailer matched profit forecasts and topped expectations for sales, but saw falling gross margin and said it was moving to a $1.25 price point for all its stores.
How did other assets trade?
- The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was down about 0.1%.
- Gold futures GCZ21 fell 1.2% to settle at $1,783.80 an ounce.
- The Stoxx Europe 600 XX:SXXP closed 1.3% lower, while London’s FTSE 100 index UK:UKX rose 0.2%.
- In Asia, the Shanghai Composite CN:SHCOMP finished up 0.2%, while the Hang Seng Index HK:HSI fell 1.2% in Hong Kong. China’s CSI 300 XX:000300 was little changed and Japan’s Nikkei 225 JP:NIK was closed for a holiday.