Stock Market Bleeding Continues As Oil Prices Top $125 A Barrel

The stock market continued its descent Tuesday, with indexes falling closer to their February lows as the price of oil continued to march upward.

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The S&P 500 fell 0.6%. The Nasdaq composite lost 0.8%. After Monday’s losses, the Nasdaq’s decline from its prior high exceeded 20%, a drop that fits the common definition of a bear market. Both indexes remain just above February lows.

The Dow Jones Industrial Average gave up 0.4%. Small caps held up better, with the Russell 2000 index up 0.1% thanks to strength in small-cap energy stocks.

Volume rose on the Nasdaq and fell on the NYSE compared with the same time on Monday. Decliners led advancers by 7-to-5 on the NYSE and Nasdaq.

Oil Prices Top $125 A Barrel

The price of U.S. crude oil jumped 5% to $125.35 a barrel, still around 2008 highs. President Joe Biden is expected to announce as early as today that the U.S. is banning imports of Russian oil.

The ban would be the latest — and perhaps most significant — in a series of sanctions against Russia since its invasion of Ukraine. But it comes at a likely cost for U.S. consumers. The average price of gasoline on Monday topped $4 a gallon, a record high. Europe’s reliance on Russian oil is also complicating sanctions.

Even if hostilities end in Ukraine, the tight global supply-demand situation should continue to support firm oil prices, Solita Marcelli, chief investment officer, Americas, at UBS Global Wealth Management, said in a commentary.

“Higher crude oil prices should support higher cash flows and shareholder returns in 2022,” Marcelli said. “The capital discipline the U.S. onshore players are demonstrating allows for significant free cash flow to fund higher dividends and share repurchases. Further, energy equities can act as an effective hedge against higher oil prices and sustained inflation.”

Gold Prices Up Again

Energy Select Sector SPDR (XLE) jumped 3.6% to a new high.

Geopolitical uncertainly and inflation are combining to push gold prices up. Gold climbed 1.4% this morning to $2,023.10 an ounce.  SPDR Gold Shares (GLD), an ETF that tracks the price of bullion, rose 2.2% to nearly a record high. It climbed 4% last week and is up 2.5% so far this week.

Treasury bonds also act as a haven, but today the yield on the 10-year Treasury note jumped 11 basis points to 1.86%. The Fed meets next week and could result in what is expected to be the first interest-rate increase of several this year.

Among major stocks, Microsoft (MSFT) fell 2.2% and is on pace for the lowest close since July 1. It is close to undercutting its February low. Amazon.com (AMZN) slid 1.8%, sinking to its lowest share price since July 2020. Nvidia (NVDA) fell to the lowest level since October.

IBD 50 Lags Stock Market

Innovator IBD 50 fell 1.6% as metals stocks fell while energy stocks acted best in the index.

Rio Tinto (RIO) fell more than 2% and is now below the 80.54 buy point of last week’s breakout. Commercial Metals (CMC) also has slipped below its latest entry.

Steelmaker Cleveland-Cliffs (CLF) plunged 7.5% and erased a 12% gain from the 24.77 buy point. That’s a round-trip sell signal.

Callon Petroleum (CPE) added 4.2% and is drawing closer to a 65.55 buy point. California Resources (CRC), a new entry in the IBD 50, gapped up 3.1%.

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