U.S. equities finished lower on Wednesday as investors looked worryingly at fresh declined in crude oil, ending a recent short-covering rebound.
Trading overall continued to be light, however, as data on the job market including labor productivity and job openings were weighed for clues on the likelihood of a Federal Reserve interest rate hike in September. We’ll know more when Federal Reserve Board Chair Janet Yellen speaks to the Jackson Hole symposium on Aug. 26.
In the end, the Dow Jones Industrial Average lost 0.2%, the S&P 500 Index lost 0.3%, the Nasdaq Composite lost 0.4% and the Russell 2000 lost 0.7%.
Elsewhere, Treasury bonds were stronger, the dollar was weaker, gold gained 0.4% and oil declined 2.5% on a rise in inventories. EIA data showed a 1.1-million-barrel build, worse than the 1 million draw that was expected.
Traders focused on a larger-than-expected decline in refinery utilization, as the gasoline oversupply situation has finally resulted in a pullback in cracking activity. While this should help refiner margins and ease the gasoline inventory situation, it will merely push the inventory problem up the supply chain into crude oil.
No surprise then that energy stocks led the way down with a 1.4% loss followed by financials, down 0.8%, as the sector still looks vulnerable to a pullback on energy loan default concerns. Exxon Mobil Corporation (NYSE:XOM) fell 1.8%, boosting the Aug $94 puts recommended to Edge Pro subscribers to a gain of 253%.
Despite the pullback, as shown below, XOM has a lot of room to fall to reconnect with where crude oil is.
Defensive consumer staples and telecom stocks bucked the trend and rose. Yelp Inc (NYSE:YELP) gained 12.8% on a 2% rise in second-quarter revenue driven by a 41% year-over-year increase in local advertising revenue. Operating income beat expectations by 20%. Walt Disney Co (NYSE:DIS) gained 1.2% after reporting better revenues.
For now, Wall Street remains singularly focused on the health of the job market and what that means for the Fed’s rate hike schedule into September and December. After another blowout payroll report for July, odds of a December hike had risen to 47% on Monday, but have since receded slightly after it was learned that labor productivity — a key antecedent of both wage gains and corporate profitability — fell for the third consecutive quarter.
There has also been some attention on the risks to the economy from the Fed’s policy divergence with other major central banks such as the Bank of Japan and the Bank of England, which threatens to tighten financial conditions in the United States via a strong dollar. Officials including New York Fed President Dudley and Governor Powell have touched on this point in recent speeches.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers.
