Before The Bell
Following the stock market's second straight winning week, capped off by a better-than-700-point surge in the Dow Jones Industrial Average on Friday, stocks opened to the downside yesterday, driven lower by a sharp drop in oil prices. The latest downturn in that commodity reflected fears of skidding energy demand on weakened economic fundamentals across the globe. Indeed, within minutes after the open, the blue chip indicator was off by more than 500 points.
However, that initial downturn was gradually reversed, so that as we headed toward the noon hour in New York, the blue chips were off by just over 200 points. Leading the comeback, which occurred in spite of a 40% drop in crude prices, were shares of Amazon (AMZN), which were up over 2%, as Americans, forced to stay at home by the coronavirus, were stepping up their purchases online. Also doing well was streaming giant Netflix (NFLX). Another stock benefitting from the stay-at-home trend was AMD (AMD), which makes chips for video games.
But it was another story on the energy stock front, where shares of some of the oil giants were suffering, notably Occidental Petroleum (OXY). In all, as we neared the noon hour in New York, the Dow had pared its deficit to just over 100 points, while the NASDAQ, off much more modestly during the early selloff, was trading in the green, with a gain of some 30 points on tech strength. Thus, yesterday's morning action reflected a market of individual stocks, rather than simply a stock market.
After that divided performance during the early hours yesterday, Wall Street began the afternoon just modestly in the red. But things would head south from there, with the major indexes moving progressively lower, with big oil continuing to lead the way into a sharp retreat by the Dow. The precipitous drop in crude prices, which reflected the lack of storage capacity to house the surplus supplies contributed mightily to the day's losses, which raised fears of an even worse economic decline in the current quarter than even some bears had been surmising.
As we hit the final hour of trading, which would see the blue chips fall to a loss north of 600 points, the market sought once more to stage a comeback. But there simply was not enough of an appetite to buy stocks among the somewhat weary bulls to ignite a serious rally. So, after a half-hearted attempt to stage a late-rebound, equities weakened into the close. In fact, even good corporate news among some oil-related entities, such as Halliburton (HAL), did little to incite buying, as that stock just treaded water.
At the close of trading, the Dow would surrender 592 points; the S&P 500 would be off by 51 points; and the NASDAQ would edge down by 89 points, a relatively stronger showing. Then, after the close, the equity futures started trading somewhat higher. Now, in pre-market dealings this morning, the futures are notably lower on a further drop in oil prices. Thus, we likely are looking at a weaker start to the trading day.
– Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
