U.S. Stocks Drop With Oil as Energy, Bank Shares Lead Selloff

  • Crude slides back under $30 a barrel, retracing recent rally
  • Banks tumble as bonds surge, Treasury yields at 9-month lows

Are Yields Curves Hinting at a Global Slowdown?

U.S. stocks retreated, with the Dow Jones Industrial Average losing more than 290 points, as investors shunned risk assets across the world while oil extended a selloff amid deepening concern that global growth is weakening.

QuickTake Oil Prices

Energy producers and banks were hit hard, with Chevron Corp. and JPMorgan Chase & Co. falling more than 3.1 percent. Exxon Mobil Corp. dropped 2.2 percent after posting its fifth-straight quarterly profit decline. Class A shares in Google parent Alphabet Inc. rose 1.3 percent to surpass Apple Inc. as the world’s most valuable company after results at its main business topped estimates.

The Standard & Poor’s 500 Index fell 1.9 percent to 1,903.03 at 4 p.m. in New York, the steepest decline in more than two weeks. The Dow lost 295.64 points, or 1.8 percent, to 16,153.54. The Nasdaq Composite Index declined 2.2 percent. About 8.5 billion shares traded hands on U.S. exchanges, 11 percent above the three-month average.

“We’re going back to what we saw in the beginning of the year with energy, materials, financials continuing to be under pressure,” said Omar Aguilar, chief investment officer of equities at Charles Schwab Investment Management in San Francisco. “The level of risk aversion in January went through the roof. Friday was an end-of-month relief rally -- nothing serious has suggested sentiment has changed direction.”

The oil rout and worries about a China slowdown have continued to roil global markets, erasing as much as $2.4 trillion from the value of U.S. equities this year. While the S&P 500 recouped some losses in the past two weeks, trimming its worst start to a year since 2009, bearish sentiment has returned. The benchmark is down almost 11 percent from its all-time high set in May.

The Chicago Board Options Exchange Volatility Index rose 10 percent Tuesday to 21.98, the most since Jan. 15 when the S&P 500 tumbled 2.2 percent to an almost five-month low. The measure of market turbulence known as the VIX rose for a third straight month in January, the longest such streak in 2 1/2 years.

Investors are also assessing the campaign for the next U.S. president, after Senator Ted Cruz won Monday’s Republican caucuses in Iowa in an upset over Donald Trump. Democrat Hillary Clinton held on to a narrow victory over Senator Bernie Sanders.

Election Cycle

Among the rationales given for the selloff in U.S. equities this year, one that is rarely mentioned is the election cycle. Research from Ned Davis Research Group shows that the final year of a two-term presidency ranks last by returns, with the S&P 500 posting a median decline of 6.6 percent since 1953.

Nine of the S&P 500’s 10 main industries fell today, with energy and financial shares dropping more than 2.6 percent. Industrial, technology and consumer discretionary companies slid at least 1.9 percent. Utilities were the best performers, rising 0.4 percent.

Refiner Tesoro Corp. fell 8.2 percent, among the worst performers in energy after its quarterly sales and profit missed estimates. Transocean Ltd. and Marathon Oil Corp. sank at least 7.5 percent.

Energy shares took another leg down in afternoon trading after S&P cut credit ratings on Chevron, Hess Corp. and Continental Resources Inc. West Texas Intermediate crude futures capped the biggest two-day drop in almost seven years, down 11 percent to slip below $30 a barrel.

“A lot of people are watching the price of oil and as big as the U.S. economy is, there is now a perception that global economies are more important than regional ones,” said Ron Anari, the Jersey City, New Jersey-based senior vice president of trading at ICAP Plc. “The equity market is all about the profitability of corporations, and it’s not that bad but it definitely could be better. At this state of the game, there is just a lot of market ambiguity.”

Banks Battered

Banks in the benchmark index lost 3.4 percent amid speculation that persistently low interest rates will weigh on profits. The yield on the 10-Year U.S. Treasury note dropped to its lowest since last April. Bank of America Corp. lost 5.2 percent, while Citigroup Inc. declined 4.9 percent. Goldman Sachs Group Inc. slumped 5 percent, the most since 2012. The shares fell for a second day after gaining more than 5 percent in last week’s final two sessions.

Alphabet’s two share classes were the only stocks to climb among 68 technology companies in the S&P 500. Qorvo Inc. dropped 7.1 percent, while Apple and Microsoft Corp. declined at least 2 percent.

ADT Corp. and Pitney Bowes Inc. led declines among industrial companies, falling more than 13 percent after their results disappointed investors. Airlines also paced the retreat, with American Airlines Group Inc. and Southwest Airlines Co. decreasing more than 4.8 percent.

Other travel-related companies weighed on the consumer discretionary group, with Royal Caribbean Cruises Ltd. tumbling 15 percent, the most since 2009 after forecasting 2016 profit that missed analysts’ estimates. Competitor Carnival Corp. lost 7.9 percent, while TripAdvisor Inc. sank 6.2 percent. Also among discretionary shares, Amazon.com Inc. slumped 4 percent to a 3 1/2-month low.

On the winning end of the consumer group today, Michael Kors Holding Ltd. jumped 24 percent, its largest gain in nearly four years. The company’s holiday results exceeded estimates, boosted by e-commerce sales and a new lineup of accessories. Mattel Inc. soared 14 percent, its best since 2009, also as holiday performance beat forecasts.

DuPont Jumps

DuPont Co. was the only one of 30 stocks in the Dow average to advance, rising 5.4 percent after merger partner Dow Chemical Co. reported better-than-expected earnings as its plastics business benefited from the drop in oil prices. Dow Chemical Chief Executive Andrew Liveris plans to leave the company after the merger is completed.

More than 100 S&P 500 companies post results this week, and analysts estimate profits at index members fell 5.6 percent in the fourth quarter, better than Jan. 15 predictions for a 7 percent slump. Of those that have released financial results, 80 percent beat profit projections, while 49 percent topped sales estimates.

Investors will be looking this week at economic releases for indications of the strength of the U.S. economy, with the government’s January jobs report coming into focus on Friday. Federal Reserve Bank of Kansas City President Esther George said today recent financial turmoil was anticipated and is no reason to delay further interest-rate increases.

George, who has consistently been among the most hawkish Fed officials, said last December’s interest-rate hike, the first such move since 2006, was belated and cautioned it would be a mistake to wait too long to raise rates further.

“A lot of last week’s rally was a technical, one-time thing,” said Michael O’Rourke, chief market strategist at Jonestrading Institutional Services LLC. “The Bank of Japan can’t do negative rates every day, and you had a month-end reshuffling that put a strong bid into equities so we’re seeing an unwind. Rallies right now are short, sharp and don’t last very long.”

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