Wall Street was sharply lower on Tuesday as U.S. oil prices hovered near $30 a barrel and energy names weighed.
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The Dow Jones Industrial Average shed 294 points, or 1.79% to 16154. The S&P 500 dropped 36 points, or 1.87% to 1903, while the Nasdaq Composite plunged 103 points, or 2.24% to 4516.
All 10 S&P 500 sectors were in negative territory as energy fell more than 4%.
U.S. equity markets were in steep decline on Tuesday as oil prices plunged and energy names dropped.
West Texas Intermediate crude tumbled 5.50% to $29.88 a barrel. Brent, the international benchmark, meanwhile, dropped 4.44% to $32.72 a barrel.
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The U.S. benchmark flirted with the psychologically-significant $30 level, ultimately settling just below it, as worries over the global supply glut continued to remain in focus a day after data out of China sparked renewed fears over slowing demand from the world’s second-biggest economy.
Combined with Monday’s 5.95% drop, oil prices saw the biggest two-day percentage decline since March 2009, down more than 11% over two trading sessions.
Meanwhile, hopes were dashed for an emergency meeting among members of the Organization for Petroleum Exporting Countries (OPEC) to discuss the possibility of production cuts to help alleviate the pressure from worldwide oversupply. Reuters reported that while energy ministers of Russia and Venezuela were open to holding talks between OPEC and non-OPEC members, Goldman Sachs (GS) said it was “highly unlikely” OPEC members would cooperate.
It’s red alert for the oil patch once again, Chris Beauchamp, IG market analyst, said in a note.
“Major indices are rapidly shedding the gains they made in the second half of January as a cocktail of worries returns. The first of these is the oil price, which has rediscovered its old habit of diving like a stone, helped in no small part by the absence of any rumors about another OPEC meeting,” he said.
Bill Merz, alternative investment strategist at U.S. Bank, said market volatility will continue until oil finds a bottom and clear signs emerge that production is leveling off.
“It takes some time for wells and drills for fracking to go offline, but the timeline is short compared to other methods used outside the U.S. By the time we reach the end of 2016, there will have been more wells coming offline in the U.S. and supply will have more opportunity to drop in earnest,” he said.
He continued by saying the supply side of the equation is still seeing production from wells drilled before the most recent selloff in oil. In other words, the market has yet to see that runoff happen.
The rapidly-deteriorating price of oil and weak fourth-quarter results put pressure on the energy sector, which was the worst performing of the 10 S&P 500 sectors on the session, falling nearly 4% in recent action.
Ahead of the bell, ExxonMobil (XOM) reported fourth-quarter earnings that beat expectations. Earnings per share of 67 cents on revenue of $59.81 billion came in well above analysts’ expectations for 63 cents in profits per share on sales of $51.35 billion. Despite the beat, the world’s biggest publicly-traded energy company logged the smallest profit since 2002, and a 58% drop from the same time the year prior. Exxon said during the period, its oil and gas output increased 4.8%.
Meanwhile, British Petroleum (BP) saw its biggest annual loss in 2015, and moved to slash 7,000 jobs, nearly 9% of its workforce, by the end of next year. In 4Q, the company booked a $6.5 billion loss. The company’s CEO said in a statement BP continues to move “rapidly” to adapt and rebalance the changing environment, while also trying to keep costs low. The results come a day after Standard & Poor’s rating agency put the company on the path to a credit downgrade.
“ExxonMobil, which is down 3% as the earnings beat fades amidst the stark reality of a remarkable slump in profits,” Beauchamp wrote. “As crude prices slide once more thanks to markets suddenly waking up and remembering the massive oversupply story, it looks like this sector will be the trailblazer for any renewed slump in stock markets.”
As the downward momentum in equities held, traders flocked to safe-havens including U.S. Treasury bonds. The yield on the benchmark 10-year fell 0.087 percentage point to 1.879%. Yields move in the opposite direction of prices.
Elsewhere in the market, financials were weighed by heavyweights Goldman Sachs (GS) and JPMorgan (JPM) after comments on Monday from Federal Reserve Vice Chairman Stanley Fischer who said it was unclear how recent market turmoil would impact the U.S. economy, and Kansas City Fed President Esther George who said the Fed should continue on the rate-hike path.
That throws into question when the central bank will likely feel comfortable hiking rates for a second time after the historic December decision to raise by a quarter percentage point. Financials stand to benefit from higher rates.
“[If] we see a weakening economy, that gives the Fed pause in their path for rate hikes and to an extent, that would alleviate a degree of pressure on the economy and stop putting downward pressure on the dollar, helping to stabilize oil,” Merz said.
After the bell, investors were set to digest fourth-quarter results from Yahoo (YHOO). It’s perhaps not necessarily the headline numbers Wall Street is most interested in but rather whether CEO Marissa Mayer will forge ahead with a proposed plan to spin off its stake in Alibaba (BABA) or sell its core business. The company has been under scrutiny for several months amid activist pressure to ditch the spinoff proposal for its Alibaba shares, opting instead to spin off its core business.
In the meantime, the Wall Street Journal, on Monday, reported the company has plans to announce cuts to 15% of its 11,000-person workforce to unspecified units.