U.S. equities fell again on Wednesday as crude oil continued to drop, falling more than 20% from its recent high to qualify for a new bear market outright.
In the end, the Dow Jones Industrial Average lost 0.3%, the S&P 500 lost 0.1%, the Nasdaq Composite gained 0.7% and the Russell 2000 lost 0.3%. Treasury bonds were mixed, the dollar was lower, gold gained 0.2% and oil fell 2.3%. The drop boosted the Pro Shares UltraShort Crude Oil (NYSEARCA:SCO) 5.4% to a gain of 11.9% since June 14.
Healthcare and biotech stocks were hot, rising 1.2% and 4.1% respectively, with the latter surging on reports that the White House’s planned executive action on drug prices could be delayed. That was enough to push the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) up and out of a two-year-long consolidation pattern to hit highs not seen since January 2016. Energy was the laggard, down 1.6%.
There was other good news too, with Nike Inc (NYSE:NKE) up 2% on an analysis by Goldman Sachs noting the company could be preparing to sell its products directly on Amazon.com, Inc. (NASDAQ:AMZN). And chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD) gained 10.6% on a launch of a new enterprise processor.
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Breadth was negative, with 1.8 decliners for every advancer with NYSE volume at 88.8% of the 30-day average.
The single biggest story, however, is the persistent weakness in crude oil. West Texas Intermediate tested below the $42-a-barrel level for the first time since last summer despite some “verbal intervention” from Iranian officials regarding possible additional OPEC production cuts. The market didn’t respond because the idea is stupid on its face: Based on the developments since OPEC first enacted its production cap agreement late last year, U.S. shale products have ramped output in response to the rise in energy prices — maintaining the global oversupply imbalance and keeping inventories bloated.
If OPEC cut further now, it would merely sacrifice market share.
As a result, energy stocks are cratering, led by oilfield services companies like Halliburton Company (NYSE:HAL).
Weakness in the energy market has tended to accompany weakness in the overall stock market as well. It will also increase pressure on corporate earnings heading into the Q2 reporting season next month.
Check out Serge Berger’s Trade of the Day for June 22.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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