Stocks edged higher Thursday, as oil prices rose considerably, a sign that a key sector in the economy is stabilizing. Stocks are down for the week as investors weigh risks which are colliding with a large up move since March 23, the market’s 2020 low point.
All three major U.S. indices rose, with the S&P 500 up 1%. The 10 year treasury yield was pressured, remaining at 0.62%. The 25% up move in the S&P 500 since March 23 has been accompanied by a rise in the price of safe bonds, as the Federal Reserve pumps dollars into the bond market to keep the interest rate environment low. The 10 year yielded 0.85% in late March.
With valuations stretching, the rally has lost steam this week. The S&P 500 is down 1.5% for the week as investors gage the speed of lockdown eases and companies’ commentary around a trend towards normalized earnings levels.
Nonetheless, oil was leading the charge Thursday, with crude up 21% to above $16 a barrel. The U.S. is a large exporter of oil and many have flagged the sector’s importance in terms of employment. Some expected oil companies to go through a second round of capital expenditure cuts as prices and demand have fallen off a cliff. Some even warn of oil bankruptcies in smaller companies.
Leading the rally in stocks were Exxon Mobil (XOM) - Get Exxon Mobil Corporation Report and Chevron (CVX) - Get Chevron Corporation Report, both up more than 2% Thursday. Those stocks have lead the S&P 500’s rally since March 23, with Exxon up 38% and Chevron up 54%. The market has looked past an ugly first quarter earnings season and likely an ugly Q2, sending valuations across the board to rich levels.
Jobless claims for the past week came in at 4.4 million, lower than the 6 million seen recently. The total number of claims is now 26 million people, or roughly 8% of the U.S. population. Many expect the unemployment rate to hit the mid teens in percentage terms.
Relatedly, the House will vote on an almost $500 billion fiscal spending plan, which will focus heavily on small business loans, which are forgivable if businesses retain employees. Some are concerned that, since small businesses burned though the first batch of loans quickly, the amount in loans isn’t enough. Still, the lending could limit unemployment.
"A further gradual decline from here should be expected, but it is unclear how much of the jobless claim surge can be undone by the Payroll Protection Program,” wrote Seemah Shah, chief strategist at Principal Global Investors in emailed remarks to reporters.