Stocks rose solidly into the green Thursday midday, after having seesawed in the morning. Horrid jobless claims data initially dampened investor sentiment, before a reported OPEC oil production cut agreement buoyed confidence in American business.
All three major U.S. indices rose Thursday, with the S&P 500 up 1.6%.
The price of crude oil rose 22% to $24.82 a barrel.
The stocks that are rising, versus those falling, paint a clear picture: investors are focusing on the implications of higher oil prices. While a negative for companies that buy oil for operations as well as for consumers paying at the pump, the positives of higher oil prices can outweigh those factors. While the 6.6 million jobless claims in the past week, a fresh record, points towards recession, stocks are already priced for a recession, with the S&P 500 still 25% down from its all-time high.
"As the markets are starting to wake up, they seem to be looking past the brutal jobless claims report as turbulence in the labor market is likely already baked in for the foreseeable future,” Mike Loewengart, head of investment strategy at E*Trade told TheStreet via email.
For oil, since the U.S. is such a big net exporter of energy, this is having ripple effects throughout multiple industries across the U.S. economy,” wrote Scott Knapp, chief market strategist at CUNA Mutual Group in emailed remarks to reporters.
The U.S. has been adding a tremendous amount of oil to the global market in the past few years and is expected to continue to do so. The U.S. averaged production of roughly 9.5 million barrels a day in 2017, a number that steadily rose to about 12.1 million in 2019, according to the Energy Information Agency. The agency estimated in March that OPEC’s total output in the first quarter of 2020 equated to just under 29 million barrels per day.
Not only are oil stocks rising considerably Thursday, but so are the stocks of companies whose revenue is the capital expenditures and operating expenses of oil companies.
First off, small and debt-laden oil companies are more sensitive to price moves than larger ones are.
Apache (APA) - Get Apache Corporation Report Haillburton (HAL) - Get Halliburton Company (HAL) Report and Occidental (OXY) - Get Occidental Petroleum Corporation Report are up 27%, 16% and 23%, respectively.
Large banks that lend in volume to oil companies are seeing a lift. JPMorgan (JPM) - Get JPMorgan Chase & Co. (JPM) Report and Bank of America (BAC) - Get Bank of America Corp Report see 2.1% and 1.7% of their total loan portfolios in oil debt, according to Goldman Sachs large-cap bank analyst. Those are the second and third in large-cap U.S. banks, when it comes to percentage of loan portfolios. JPMorgan and Bank of America both rose 3%.
Several large industrials see a significant portion of their revenue coming from oil companies, who beed to buy equipment to produce oil. Caterpillar (CAT) - Get Caterpillar Inc. Report, which sees 7% of its revenue from energy and transportation according to FactSet estimates, rose 4.5%.
Airlines, which see compressed profit margins with rising oil prices, saw their stocks fall. Delta Airlines (DAL) - Get Delta Air Lines, Inc. Report and United Airlines (UAL) - Get United Airlines Holdings, Inc. Report fell more than 1% and more than 4%, respectively.
Higher gas prices hurts consumers. Most consumer discretionary ETFs lagged the broader market, rising not more than about 1%.