Dow plummets more than 1,600 points, S&P 500 sinks 6% amid oil price war
Stocks cratered Monday as investors grappled with the sinking price of oil and the spread of the coronavirus.
The Dow Jones Industrial Average tanked 1,665 points — 6.4% — on pace for its worst day since December 2008, while the S&P 500 plunged 6.1%. The massive sell-off triggered a key market circuit breaker minutes after the opening bell. Trading was halted for 15 minutes until reopening at 9:49 a.m. ET. At one point in morning trading, the 30-stock Dow dropped 2,046 points and the S&P 500 cratered 7.4%.
Saudi Arabia on Saturday slashed official crude selling prices for April, in a sudden U-turn from previous attempts to support the oil market as the coronavirus hammers global demand. The move came after OPEC talks collapsed Friday, prompting some strategists to see oil prices crater to $20 per barrel this year.
“Crude has become a bigger problem for markets than the coronavirus,” Adam Crisafulli, founder of Vital Knowledge, said Sunday. “It will be virtually impossible for the [S&P 500] to sustainably bounce if Brent continues to crater,” he added.
International benchmark Brent crude futures plummeted 29.07% to $32.11 per barrel after dropping 30% earlier. U.S. West Texas Intermediate crude futures dropped 30.98% to $28.49 per barrel, on track for its worst day since 1991. The Energy Select Sector SPDR Fund (XLE), which tracks the energy sector, tumbled 15%.
Bank stocks were smashed as lower yields put pressure on their margins, while an oil crash could cause energy companies to default on their obligations. JPMorgan plunged more than 9%.
President Donald Trump blamed the media and the oil price war for the stock rout on Monday, arguing in a series of tweets that lower gasoline prices are “good for the consumer.”
Donald J. Trump✔@realDonaldTrumpSaudi Arabia and Russia are arguing over the price and flow of oil. That, and the Fake News, is the reason for the market drop!
“The idea that lower gasoline prices is going to put more cash in workers’ pockets and give consumer spending and the economy a boost doesn’t seem to cushion the blow for stock market investors,” Chris Rupkey, MUFG Union Bank’s chief financial economist, said in a note. “They want out. Big time. The sky is falling. Get out, get out while you can. Wall Street’s woes have to eventually hit Main Street’s economy hard.”
Gold, another safe-haven asset, crossed $1,700 an ounce, hitting its highest level since December 2012. Copper prices hit a more than three-year low of $2.46. Copper is seen as a barometer of broad economic demand given its applications in electrical equipment and manufacturing.
More Fed rate cuts?
The Federal Reserve announced an emergency rate cut last week to combat the economic impact from the virus, its first such move since the financial crisis. President Donald Trump on Friday signed a sweeping spending bill of an $8.3 billion package to aid medical research.
The New York Fed said Monday it will increase the amount of money it is offering to banks for their short-term funding needs. To make sure the funding, or repo, markets are working properly, the central bank said it will up the amount it offers in overnight operations from $100 billion to $150 billion through Thursday.
Traders expect the central bank to slash rates by three-quarters of a percentage point at its March meeting next week. Chances for a full percentage point cut this month were at 29.2%, according to the CME FedWatch tracker.
“This is just the need for fiscal policy,” CNBC’s said on Monday. “Monetary policy is over.”
The iShares High Yield Corporate Bond ETF (HYG) fell 4.5%, on concerns that a oil price crash will cause many small energy companies to default, hitting the high-yield credit market that they’ve become so a large part of.
– CNBC’s Eustance Huang, Pippa Stevens and Nate Rattner contributed to this report.
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