Stocks fell sharply to start the week on Monday as investors weighed the latest coronavirus news along with a sharp decline in U.S. crude prices. The market was coming off its first back-to-back weekly gains in more than two months.
The Dow Jones Industrial Average traded 390 points lower, or 1.6%. The S&P 500 slid 1.2% while the Nasdaq Composite dropped 0.9%. (Click here for the latest market news.)
Chevron and Exxon Mobil fell more than 5% each to lead the Dow lower. The S&P 500 energy sector lost more than 6% in early trading as Occidental Petroleum and Halliburton both fell more than 10%.
Equities were following a decline in U.S. oil prices, which raise concerns about how deep the economic slowdown will be this quarter and also hit the prices of energy stocks.
The May contract for West Texas Intermediate, which expires on Tuesday, plunged more than 32% to $12.30 per barrel on weak demand outlook and storage capacity issues.
The negative impact on stock futures from oil likely would have been worse were it not for lesser declines in oil contracts expiring during future months. WTI’s June contract slid over 7% to $23.14 per barrel. July’s oil contract was down 4%. It was a strange phenomenon that analysts chalked up to the collapse in demand for oil contracts expiring this week. Refineries don’t need the oil and are near storage capacity with most of the country shut down.
“The moves in the oil market are really just unbelievable now that we are literally running out of storage space,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, said in a note. “I do believe that these types of moves is what bottoms are made of and in May and June when things start to reopen again it will go a long way in helping along with the production cuts.”
Stocks got a jolt last week after a report said patients with severe virus symptoms were quickly recovering after using remdesivir, a Gilead Sciences drug. The Dow, S&P 500 and Nasdaq all rose more than 2% last week. The major averages also had their first consecutive weekly gain since February.
Last week’s gains also put the S&P 500 and Dow more than 30% above their intraday lows set on March 23.
New York Gov. Andrew Cuomo said Sunday the state is “past the high point” of new cases, noting the infection rate has fallen along with coronavirus-related hospitalizations. Cuomo added New York will roll out antibody testing this week. In New Jersey, Gov. Phil Murphy said Saturday: “We’re flattening the curve.”
In Washington, Treasury Secretary Steven Mnuchin said the administration and Congress were close to striking a deal on a second round of loans for small businesses. A $349 billion rescue loan program ran out of money on Thursday.
“The equity markets and bond markets in the US are telling me that my relatively optimistic outlook for the global economy is also what the markets are starting to price in,” Stephen Jen, co-founder of SLJ Macro Partners, wrote in a note. “There is now light at end of the tunnel.”
“While nobody should be under the illusion that the virus will be eradicated soon, it is important to the equity markets that we have gone through most of the known ‘rolling apexes,’ through mitigation measures,” Jen said.
But while the market may be pricing in an improvement in the virus outbreak, recent economic data has been dismal. Over the past month, 22 million jobs have been lost, weekly unemployment claims numbers from the Labor Department showed.
The number of coronavirus related deaths have also risen to more than 165,000 globally, according to Johns Hopkins University. In the U.S., the death toll has risen to over 41,000.
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