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Plunging oil prices weigh on energy stocks. Other stocks rise

Plunging oil prices weigh on energy stocks. Other stocks rise
A U.S. flag flies outside New York Stock Exchange. (Mary Altaffer / Associated Press)

After two days of huge losses, U.S. stock indexes ended the day back where they started Tuesday. Energy companies sank as crude oil plunged 7%, but technology and consumer-focused companies climbed.

U.S. crude oil fell to its lowest price since August 2017, and it has now fallen almost 40% since early October. Investors are worried that supplies continue to increase and that demand is slowing as the global economy weakens. The plunge in oil prices has crushed energy company stocks in recent weeks.

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Some of energy stocks’ Tuesday losses were offset by gains in Apple, Amazon, Microsoft and Boeing. Boeing raised its quarterly dividend and said it would buy back an additional $20 billion of its stock. Boeing has tumbled on worries that the global trade war will hit its profits particularly hard.

The Federal Reserve started its last meeting of the year. Investors expect it to raise interest rates Wednesday when the meeting concludes. That would be its fourth increase this year and its ninth in three years. Investors are hoping the Fed will say the increases are going to slow in 2019 in light of recent signs that economic growth is easing.

Trading was turbulent. Widespread market declines Friday and Monday knocked a combined 1,004 points off the Dow Jones industrial average, and on Tuesday, investors couldn't find a convincing reason to drive stock prices higher. But they didn't see cause for another big decline either.

There haven't been any big developments in U.S.-China trade talks, a major focus for markets, since the beginning of this month. JJ Kinahan, chief markets strategist for TD Ameritrade, said that has left investors confused about the state of the trade dispute and reluctant to commit to stocks, while businesses aren't spending.

“We don't know the rules of the game,” he said. “People can't plan. When you can't plan, you're not anxious to buy stocks.”

The Standard & Poor’s 500 index edged up 0.22 of a point to 2,546.16. It’s still trading at its lowest levels in 14 months. The Dow rose 82.66 points, or 0.4%, to 23,675.64. The Nasdaq composite rose 30.18 points, or 0.4%, to 6,783.91.

The Russell 2000 index of smaller companies fell 0.97 of a point, or 0.1%, to 1,377.18. The index is 21% below the peak it set in August, meaning it's in what Wall Street calls a bear market.

Benchmark U.S. crude plunged 7.3% to $46.24 a barrel in New York. Brent crude, used to price international oils, sank 5.6% to $56.26 a barrel in London.

The twin fears of slower global economic growth and rising petroleum stockpiles are pulling down crude prices. OPEC and several other countries recently agreed to cut production of oil in 2019, but that hasn't stemmed the decline in prices. Traders have doubts that the cut is large enough to balance supply and demand.

OPEC is “not the only game in town anymore,” Kinahan said. He said rising oil production in the United States and a combination of alternative fuels and greater efficiency by businesses has reduced OPEC's ability to sway the oil market.

On Tuesday, the Energy Information Administration said U.S. shale oil production will keep climbing in January, and the Wall Street Journal reported that oil production in Russia reached a record high this month.

The Federal Reserve recently forecast three increases in interest rates next year, but investors doubt that's going to happen. The Fed's rates help set borrowing costs for various types of loans. Higher rates can slow economic growth, and investors have been worrying about that as China and Europe have suggested growth is slowing, and the U.S. economy is also expected to cool off in 2019.

Those higher interest rates also make stocks look relatively less attractive.

After the announcement of its dividend increase and larger stock repurchase, Boeing shares climbed 3.8% to $328.06. The stock has dropped 16% since early October. Several other companies that have recently suffered big losses also said they would buy back more stock, including healthcare products giant Johnson & Johnson and insurer Allstate.

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The Commerce Department said developers broke ground on more apartments in November, and home builders climbed. Lennar shares rose 2.5% to $41.01. NVR shares advanced 1.1% to $2,479.81. The companies have taken huge losses this year as rising mortgage rates and prices have reduced home sales.

Real estate investment trusts rose Tuesday after Monday’s sharp losses. Apartment building owner AvalonBay Communities advanced 1.1% to $181.91. CBRE Group climbed 4.3% to $41.15.

Bond prices rose again. The yield on the 10-year Treasury fell to 2.82% from 2.85%.

Wholesale gasoline slid 4.2% to $1.35 a gallon. Heating oil fell 4% to $1.75 a gallon. Natural gas leaped 8.8% to $3.84 per 1,000 cubic feet.

Gold edged up 0.1% to $1,253.30 an ounce. Silver fell 0.4% to $14.70 an ounce. Copper dropped 3.3% to $2.66 a pound.

The dollar fell to 112.53 yen from 112.75 yen. The euro rose to $1.1357 from $1.1350. The British pound rose to $1.2639 from $1.2629.

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