All three major U.S. indices fell hard Tuesday, with the S&P 500 down 3.07 and the Dow Jones Industrial Average down 2.67%, or 631 points. Investors moved into safety, sending the 10 year treasury yield down to 0.57% from 0.61% Monday.
Oil prices remained stuck at historically low levels. Crude oil did hit positive territory after hitting negative $37 a barrel Monday as leveraged traders closed positions before May long bets expired. But June contracts fell 24% to $19 a barrel Tuesday. That’s the lowest it’s been since 2002.
The prospect that oil prices are seeing such demand destruction that not even a 9.7 million barrel per day OPEC production cut can save prices is scaring Wall Street. The U.S. produces far more oil than it did in years past and reduced capital expenditures and potential bankruptcies in smaller oil companies is a huge negative to employment in the country.
Meanwhile, earnings rolled in. Coca-Cola (KO) - Get Report beat earnings already lowered estimates and unsurprisingly declined to give guidance. Sales volumes are getting crushed because of lockdowns. The stock, down just 2.5% Tuesday, is down about 18% for the year, worse than the badder market’s loss of 15%.
Netflix (NFLX) - Get Report, a rare gainer in 2020’s market, reported earnings. Analysts had expected the company to see more subscribers in the U.S. than previously anticipated, as people spend more time streaming at home during the the pandemic. Though gains have since been muted, Netflix initially gained 10% after hours after reporting the addition of 15.77 million paid subscribers in the first quarter.
As earnings trickle in, which the market is looking past on the back of currently fragile optimism on lockdown eases, analysts have reduced their 2020 earnings estimates for S&P 500 companies, bringing the number down to $141. Stocks on the index still trade around 19 times that number, far higher than average multiples historically.
Here’s all that Wall Street had to say on the day:
Chris Zaccarelli, Chief Investment Officer, Independent Advisor Alliance:
"In the real-world you would never pay someone to carry away your oil - you just wouldn’t sell it to them - but the supply and demand realities that created negative prices in the near-term futures markets are pressuring the spot price (the price actually paid today to sell oil) and we are seeing the “real” price of oil falling today based on the realization that the current supply-demand dynamic has finally hit the point of almost peak storage.”
Mike Loewengart, Head, Investment Strategy, E*Trade:
"Markets tend to react to the unexpected and fear-inducing--crude’s crash certainly fits that bill. What’s interesting to us is the size of the dip—it’s not nearly as dramatic as it had been even just a few weeks ago. One could argue the market is beginning to find its footing as discussions to reopen the economy grow, virus cases slow, potential treatments move forward, and a highly anticipated approval of additional stimulus from Congress.”
Semma Shah, Chief Strategist, Principal Global Investors:
"Sharp increases in testing may help to reassure people that resuming normal activity is safe. But rushing the re-opening process, before sufficient hospital capacity, testing kits and contact tracing technology are in place—as some governments appear keen to do—will only end up injecting more uncertainty and fear, risking the potential economic recovery. So, with this in mind, is the recent bull market currently underway sustainable? History suggests it’s unlikely—in almost all pullbacks, equity indices retest their lows from the initial wave of selling.”
Brad McMillan, Chief Investment Officer, Commonwealth Financial Network:
“Based on the earnings expectations then [March] , they [stocks] became the cheapest since 2015. Since then, however, a combination of a market recovery and declining earnings expectations has brought the market to be even more expensive—based on next year’s expected earnings—than it was at the peak earlier this year and more expensive that at any point in the past five years. Right now stocks are not cheap. A slower recovery seems more likely, which means we should be cautious about stock prices."
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