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Energy stocks dive again as oil drops, offsetting tech and healthcare gains

A Wall Street sign in New York.
(Mark Lennihan / Associated Press)

Energy stocks dived again Wednesday as oil dropped to its lowest price since last summer, extending their dismal start to the year. Gains for healthcare and technology stocks helped restrict losses for broader market indexes.

The Standard & Poor’s 500 index slipped 1.42 points, or 0.1%, to 2,435.61. The Dow Jones industrial average fell 57.11, or 0.3%, to 21,410.03, and the Nasdaq composite rose 45.92, or 0.7% to 6,233.95.

“The story truly is energy right now,” said JJ Kinahan, chief market strategist at TD Ameritrade.

Crude dropped for a third straight day and touched its lowest price since August on expectations that supplies of oil will far outweigh demand. Even a report showing that U.S. inventories shrank last week did little to change the tide.

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Benchmark U.S. crude lost 98 cents, or 2.3%, to settle at $42.53 a barrel. Brent crude, the international standard, fell $1.20, or 2.6%, to $44.82 a barrel.

The price of oil has now dropped more than 20% this year, breaking into what traders call a bear market. How much of an effect that will have on most 401(k) accounts will depend on how much it undercuts energy companies’ profits, and whether the pain will spill into other areas of the market.

Accelerating corporate profits and expectations that they’ll continue have been a big reason for the stock market’s rise this year, and energy companies were expected to provide some of the biggest gains.

“We’re in the warning area here, between $40 and $44,” Kinahan said of the price of oil. “If we get below $40, I think you’ll get people adjusting their expectations.”

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Energy stocks in the S&P 500 tumbled 1.6%, a day after falling 1.2%. They are down nearly 15% for the year; meanwhile, the overall S&P 500 is up 8.8%.

Losses for the broad S&P 500 were milder Wednesday because of strong gains by healthcare and technology stocks.

Red Hat, an open-source software company, jumped 9.6% to $98.58, one of the biggest gains in the index, after reporting better-than-expected earnings for its latest quarter. Its forecast for revenue and earnings this fiscal year also topped analysts’ expectations.

La-Z-Boy soared 22.1% to $32 after reporting quarterly earnings that easily topped analysts’ expectations. Its customers have been shifting toward higher-priced and more profitable products for the company, such as leather items.

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In overseas markets, the Shanghai composite rose 0.5% after index provider MSCI said it will include 222 of what are called Chinese A-shares in its widely followed Emerging Markets index. The move, which will take effect next year, will probably cause big shifts of money into mainland Chinese stocks by mutual funds and other investors that track the index.

MSCI has been considering including A-shares in its index for years but had demurred until now due to a variety of concerns, such as how inaccessible the shares were for foreign investors. China has since started a “Stock Connect” program that links mainland Chinese stocks with the Hong Kong market to make them more accessible, among other changes.

In Europe, France’s CAC 40 fell 0.4%, and Germany’s DAX and the FTSE 100 in London each lost 0.3%. In Asia, Japan’s Nikkei 225 index and South Korea’s Kospi both fell 0.5% and the Hang Seng in Hong Kong dropped 0.6%.

The 10-year Treasury yield held steady at 2.16%. The two-year yield slipped to 1.34% from 1.35%, and the 30-year yield fell to 2.73% from 2.74%.

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The British pound rose to $1.2668 from $1.2629. The euro rose to $1.1167 from $1.1128, and the dollar slipped to 111.34 Japanese yen from 111.41 yen.

In the commodities markets, gold rose $2.30 to settle at $1,245.80 an ounce, silver fell 4 cents to $16.37 an ounce and copper rose 5 cents to $2.60 a pound. Natural gas fell 1 cent to $2.89 per 1,000 cubic feet. Heating oil fell 3 cents to $1.36 a gallon. Wholesale gasoline fell 1 cent to $1.41 a gallon.


UPDATES:

2:25 p.m.: This article was updated with closing prices, context and analyst comment.

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This article was originally published at 8:40 a.m.


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