United States stocks tumbled on Monday as energy stocks continued to take a battering, with oil falling to its lowest levels since 1998 and investors bracing for earnings reports and data detailing the economic damage wrought by the coronavirus outbreak.
The Dow Jones Industrial Average was down nearly 500 points or just over two percent, minutes into the open of trading in New York. The S&P 500 – widely used gauge of US retirement and education savings accounts- was down 1.2 percent, while the tech-heavy Nasdaq Composite Index down 0.68 percent.
Energy stocks led the charge lower on Wall Street. Oil prices have collapsed in recent weeks as global coronavirus lockdowns have obliterated demand for crude. And prices continue to fall despite a historic deal to tighten production reached among the world’s top producers earlier this month.
US benchmark crude West Texas Intermediate (WTI) plummeted 35 percent to below $12 a barrel – levels last seen in 1998 on concerns of oversupply.
Shares of Exxon Mobil Corp were trading down 3.94 percent, while Chevron Corp shares slid 4.32 percent. Shares of oilfield services provider Halliburton Co were down more than 5 percent.
“The real problem of the global supply-demand imbalance has started to really manifest itself in prices. As production continues relatively unscathed, storages are filling up by the day. The world is using less and less oil and producers now feel how this translates in prices,” Bjornar Tonhaugen, Head of Oil Markets at Rystad Energy, said in a Monday note.
Despite Monday’s turn downwards, Wall Street’s main indexes have rallied this month, with the S&P 500 ending Friday with its biggest two-week percentage gain since 1974 on hopes of global stimulus and early signs that the coronavirus outbreak is nearing its peak in Europe and the US.
The Nasdaq also registered its best two weeks since 2001, powered by new record highs for Netflix Inc and Amazon.com Inc – now known as “stay-at-home” stocks. Coronavirus lockdowns have driven up demand for online streaming and home delivery of groceries.
However, the benchmark S&P 500 is still 15 percent below its all-time high. Economists continue to warn of a deep economic downturn from the halt in business activity that has seen some 22 million Americans file for unemployment in the four weeks ending on April 11.
After US banks kicked off the quarterly earnings season last week with painful forecasts for 2020, investors are keeping a close watch on reports from Delta Air Lines Inc, Southwest Airlines Co and Netflix Inc later this week.
Hopes were raised in recent sessions for a gradual reopening of the US economy after President Donald Trump cited signs of plateauing in the virus outbreak and outlined new guidelines for states to pull out of shutdowns.
But his plan was thin on details and left the decision largely up to state governors.
In a note on Monday, Goldman Sachs warned about relaxing lockdown measures too soon, adding that the recent drop in the number of coronavirus cases and fatalities is a direct result of social distancing.
“We conclude that there is a significant risk of a second wave if policy or distancing behavior are eased prematurely and indiscriminately, and that a successful reopening strategy is likely to involve a sharp ramp-up in testing and contact tracing, as well as low-cost public hygiene measures,” Goldman analysts wrote.