For those fans of the Stock Trader’s Almanac, we have now seen what happens when historical record meets context.
Despite seven straight months of the stock market rising on the first day of the month, stocks plunged Tuesday, as the market’s inverse relationship with oil prices is evidently as strong as ever.
The Dow Jones Industrial Average dropped 168 points to 12,058, the Nasdaq fell 45 points to 2737 and the S&P 500 was down 21 points to 1306.
As important as those figures, of course, is the price of crude oil, which jumped above $100 on Tuesday, then eased back into double digits – only to pass $100 in after-hours trading.
And what caused today’s panic? That’s a little harder to say, but many observers pointed to the next contestant in the Middle East Unrest Tournament – Iran, which has reportedly become another scene of protest, which are continuing to strengthen in Libya and Bahrain, with accompanying government opposition.
Iran, of course, represents the real deal in terms of oil production, as its home to 10% of the world’s reserves. While even Libya’s oil production could be shrugged off in terms of its global economic impact, there’s no such loophole with Iran – anything more than isolated showings of solidarity will bring even growing uncertainty to markets.
It also behooves investors to take note of a solid observation by the good folks at briefing.com – what is exactly going in the Middle East is impossible to totally discern due to the limits of good information. But we did see the Saudi Arabian stock market fall 7% on Tuesday, and that must be telling us something that isn’t exactly positive. That market, perhaps above all others, bears watching this week.
Ironically, it was a decent overnight performance in equities that put U.S. stocks in the green to start the session. Now, bourses in Asia and Europe will be digesting the reaction here to $100/barrel oil, which, in turn, sets up a negative bias to begin Wednesday’s trade (barring a retraction in crude prices).
It won’t surprise you to know that airline stocks suffered on Tuesday, as they have in general on moves higher in oil. US Air (NYSE:LCC) was off 7.7%, while Delta (NYSE:DAL) slipped 5.6%.
Not that any transportation stocks really escaped Tuesday’s wrath: Ryder System (NYSE:R) shares, for example, were off 2.8%.
