Stocks fall as slump in oil prices weigh down energy shares

Oil price drop leads slump in stocks

U.S. stocks fell as the continuing sell-off in crude pulled down energy shares before the start of corporate earnings.

Energy shares tumbled 2.8%, the most among 10 groups in the S&P 500, as crude dropped 4%. Tiffany & Co. lost 14% after the jewelry retailer lowered its annual forecast after sales declined during the holidays. SanDisk Corp. fell the most in almost six years after reporting preliminary results below its own estimates.

The S&P 500 slid 0.8% to 2,028.43. Losses accelerated after the market's open as the benchmark gauge fell through its average price for the last 50 days. The Dow Jones industrial average lost 93.86 points, or 0.5%, to 17,643.51. The Nasdaq 100 index slid 1% as technology shares retreated.

"When you get the kind of 1% moves we've had in both directions, there's definitely still uncertainty out there and that's usually not the sign of a healthy market," Matt Maley, an equity strategist at Miller Tabak & Co. in Newton, Mass., said by phone. "With earnings kicking off, the question is going to be how much of the decline in energy company earnings is already priced in."

Investors were whipsawed last week as the S&P 500 had up and down swings of more than 1% on three separate days, with an average daily move of 1.3% for the full week. The volatility stands in contrast to 2014, when the gauge fluctuated 0.53% on average each day for the calmest year in U.S. stocks since 2006.

Sliding oil

The S&P 500 has fallen 3% since a record in December amid sliding oil prices. That's prompted analysts to cut their profit forecasts for companies in the index, with reductions spread across nine of 10 industry groups and energy producers seeing the biggest cut.

"Markets have been volatile because they still haven't made up their mind whether lower oil prices are positive for consumers and the overall world economy or whether it means more financial stress," Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich, said by telephone. "This has been the tug of war between the two camps. We think it'll be positive for consumption. We're overweight in the U.S. this year."

Falling oil prices have kept damped inflation, leaving it below the Federal Reserve's target even as the economy shows signs of accelerating.

Rate debate

Fed Bank of San Francisco President John Williams, who will vote on policy this year, said raising interest rates in June would be a close call amid "strong momentum" in the labor market and weaker wage gains.

Fed Chairwoman Janet Yellen told reporters last month not to expect the central bank to raise rates before the end of April, leaving expectations intact for a move around mid-year.

Alcoa Inc. will post fourth-quarter earnings after the market closes today, unofficially kicking off the reporting season. Later this week, investors will weigh reports for clues on the health of the world's largest economy, including retail sales, manufacturing in the New York region and industrial production.

Energy shares

Schlumberger Ltd., which posts earnings this week, fell 3.9%. The world's largest oilfield-services provider was cut to neutral, the equivalent of a hold, from buy at Goldman Sachs Group Inc.

Other energy stocks also retreated after Goldman reduced its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year. Oil needs to trade near $40 a barrel in the first half of this year to curb shale investments, the bank said.

"Many people are fearful that this is a sign of deflation coming," Rob Lutts, chief investment officer at Salem, Mass.-based Cabot Wealth Management Inc., said via phone. "There's a little bit more fear in the air and it revolves around things we can't control, including overseas economies and concern over how fast they're growing."

Exxon Mobil Corp. and Chevron Corp. plunged at least 1.8% today to lead declines in the Dow. Forty-two of the 43 members in the S&P 500 Energy index retreated, as the gauge slumped 2.8%. Transocean Ltd. lost 3.7% for a 10th straight drop and the lowest level since 1995.

In Europe, oil-and-gas producers tumbled 1.3% for the second-biggest drop in the Stoxx Europe 600, while an index of developing-nation energy companies slid 1.9% to pace losses in the MSCI Emerging Markets index.

Technology companies in the S&P 500 declined 1.2% as SanDisk lost 14%. The maker of data-storage chips for mobile devices reported preliminary quarterly revenue that trailed its own forecast on lower sales of retail and flash-technology products.

 

Copyright © 2016, Los Angeles Times
65°