Stock losses accelerated midday Tuesday, as oil prices showed not much sign of life and earnings from big U.S. corporates rolled in. Wall Street had also flagged that valuations have been stretching against a number of risk factors.
All three major U.S. indices plummeted Tuesday, with the S&P 500 losing as much as 3.3% and the Dow Jones Industrial Average losing as much as 2.7%, or more than 650 points. Investors flocked to safety, buying up the 10 year treasury bond, which saw its yield fall to 0.55% from 0.61%.
The selloff was broad, with most sectors falling more than 1%, although defensive sectors like consumer staples and utilities did drop by a lower percent than did cyclical sectors, like banks and industrials.
Crude oil prices headed back to positive territory and many strategists and wealth managers point out that oil produced by companies will not sell at negative prices, which the oil futures market had reflected. Traders were ridding of long positions that expire in May, as OPEC’s production cut has been a disappointment compared to the momentum of falling demand spurred by Coronavirus. Oil output is an integral part of the U.S. economy, making the possibility of further capital expenditures cuts or even bankruptcies in American oil a scary proposition.
Earnings rolled in. Investors have looked past a rough first quarter and even second quarter, although earnings reports so far haven’t shown anything to like.
Coca-Cola (KO) - Get Report only reported a 1% drop in revenue, against exceptions of more than 2% and withdrew guidance for the full year. The stock was largely flat Tuesday. The company said poor restaurant sales were bringing global sales volumes down 25% in the month of April so far.
Wall Street has been growing wary of stocks, which trade at 2020 earnings multiples higher than 18 times, versus below 15 times at the market’s low in late March. Meanwhile, the extent of the economic damage from lockdowns, which will be eased slow rather than rapidly, remains to be seen in earnings reports and the speed of a recovery.