Stocks were down in a massive risk-off move Tuesday. Oil prices showed no signs of life, while earnings rolled in.
All three major U.S. indices fell, extending losses to start the week. The S&P 500 fell as much as 2%. Investors piled into safety, sending the 10 year treasury yield down to 0.54%, a move so pronounced, it seemed there were more buyers of the bond than just the Federal Reserve.
Crude oil rose, but June contracts for crude fell to below $19 a barrel for the first time since 2002, a 27% down move. Investors had already known that the oil supply glut, barely offset by OPEC 9.7 million barrel per day cut for May, would pressure oil. But after crude prices fell into negative territory Monday, some had thought they would turn back positive Tuesday.
Lower oil prices do mean lower costs for consumers and companies like airlines, but with the U.S. making oil production a more prevalent part of the economy in recent years, the threat to small, debt-laden oil companies is great. Drastically lowered capital expenditures and the currently faint threat of bankruptcies to some would mean a large chunk of layoffs for the American economy. "Think about the state of Texas and all the oil workers employed in Texas,” Brian Price, head of investment management at Commonwealth Financial Network told TheStreet.
The down move in stocks was broad. Chevron (CVX) - Get Report and Exxon Mobil (XOM) - Get Report led the losses, down 4% each. Bank stocks like Morgan Stanley (MS) - Get Report and Wells Fargo (WFC) - Get Report fell more than 2%. Even defensive consumer staples like Procter and Gamble (PG) - Get Report fell 1.23%, albeit less than the broader market.
Elsewhere, earnings rolled in. Chipotle reported earnings, as did Coca-Cola (KO) - Get Report, which beat already lowered revenue and earnings estimates, as global volumes dropped 25%. Places like restaurants and sporting events were a drag on sales. The company said it does not have enough visibility, given lockdowns, to forecast the rest of the year. The stock, down more than 13% year-to-date, only fell about 1%.
Many strategists and fund managers have expected the negative earnings and even guidance results. But stocks came into Tuesday trading at rich valuations — the S&P 500 is up 28% from its 2020 low hit March 23 — and some have cautioned for the near-term, especially as uncertainty over lockdowns and virus testing lingers.
Some waves of selling have been indiscriminate and Morgan Stanley’s Chief U.S. Equity Strategist Mike Wilson wrote in a note that richly valued companies that issues "bad micro news,” or developments specific to the company, could drag down the market in the near-term.