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Stocks Lose Steam as Oil Supply Cuts Are in Question

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Stock gains lost steam by midday Wednesday, as Russia reportedly hinted it may ease cuts to oil production. Continued tensions between the U.S. and China didn’t help the market either. 

The S&P 500’s gain slowed to 0.25% by noon, with the safe 10 Year Treasury bond seeing its yield fall to 0.68%. Yields fall when prices rise. In the morning, the S&P 500 was up 1% and the 10 Year Treasury Yield was up to 0.71%. 

Russia reportedly said it would be for the easing its oil production cuts by July. Previously, OPEC agreed to cut about 9.7 million barrels per day this summer, a minimal cut compared to the velocity of the demand drop-off in light of the pandemic. Prices have risen recently because of state reopenings and optimism on a vaccine. 

The price of crude oil fell as much as 5%, before moderating to a 3% loss to $33 a barrel. The Energy Sector SPDR etf  (XLE)  rose 0.4% after having risen 1.4% in the morning. 

U.S. investors want to see the price of oil remain at a level that is profitable for oil companies, which is a considerable source of employment for the country. 

A lot of cyclical sectors were still outperforming Wednesday. Banks were up, with the Invesco KBW bank etf  (KBWB)  up 4.7%. The yield curve between the 2 Year and 10 Year Treasury bonds has expanded to around 54 basis points from 48 since May 13, key for banks’ profits as banks are also lending in huge volumes as a result of monetary and fiscal stimulus. 

Two other factors weighing on the market were tech stocks and U.S.-China tensions. 

The NYSE FANG index fell roughly 2%, as the index is about 20% of the S&P 500’s market capitalization. Investors have been moving to of growth tech and into more cyclical value names. 

The U.S. is threatening sanctions on China, after the Chinese government passed anti-Democratic national security laws, stoking protests in Hong Kong. This is the latest development of any that suggests potentially the end of free trade between the two nations. 

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