Oil Prices Rise as Production Cuts Announced
A surprise announcement over the weekend of oil-production cuts led to a jump in crude prices, coloring market action on Monday. A group of large oil producers led by Saudi Arabia said Sunday they would cut more than a million barrels of output a day starting next month. This news was unfavorably received by the White House and may have been due to Biden’s administration and their announcement of not refilling the Strategic Petroleum reserve once prices came down.
Brent Crude Benchmark
The front-month contract for the Brent crude benchmark gained $5.04 a barrel, or 6.3%, to $84.93. This marked Brent crude’s biggest one-day percentage increase since March 2022, when the war in Ukraine had sent oil prices climbing amid concerns about global energy supply constraints.
Impact on Energy Companies
The rise in oil prices on Monday boosted shares of energy companies. The S&P 500 energy sector added 4.9%, the best-performing segment of the S&P 500. Exxon Mobil jumped $6.47 a share, or 5.9%, to $116.13. Chevron climbed $6.79 a share, or 4.2%, to $169.95, a top gainer in the Dow industrials.
Concerns on Inflation and Interest Rates
Higher oil prices reignited concerns on Wall Street about inflation and the Federal Reserve’s interest-rate increases designed to tamp down elevated costs. “The fight on inflation is not over. If inflation from energy prices starts to rebound again, that won’t be a good scenario for central banks,” said Luc Filip, head of investments at SYZ Private Banking.
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Manufacturing Activity Slows Down
Meanwhile, new data showed a slowdown in manufacturing activity. The Institute for Supply Management’s purchasing managers index dropped to 46.3 in March from 47.7 the prior month. Economists polled by The Wall Street Journal expected a reading of 47.3. That marked the fifth month that the index has been below 50—the dividing line between manufacturing expansion and contraction—and the lowest level since May 2020. The ISM says that readings below 48.7, over time, are usually an indication the overall economy is contracting.
Impact on Treasury Yields
Treasury yields can provide important insights into the health of the stock market. When treasury yields rise, it can signal that investors are expecting higher inflation and higher interest rates, which can negatively impact stocks. On the other hand, when treasury yields fall, it can indicate that investors are seeking safety in bonds and may suggest that the stock market is underperforming. Treasury yields pulled back after the release of the manufacturing data. The yield on the benchmark 10-year Treasury note declined to 3.430% from 3.491% at the end of last week.
Health Insurers Rally
Shares of U.S. health insurers rallied Monday after regulators announced reimbursement rates for privately administered Medicare plans that were more favorable than investors had expected. UnitedHealth Group jumped $21.60 a share, or 4.6%, to $494.19. It was the top contributor to the Dow industrials, making up roughly 140 points of the blue-chip index’s gains, according to Dow Jones Market Data. Humana, Elevance Health and Cigna Group also rose.
Auto Makers Struggle
Elsewhere, shares of auto makers declined Monday as car payments grew more expensive in the first quarter amid elevated interest rates. In the first quarter, the average loan payment for a new automobile was $730 a month, about $75 higher than the period last year, according to Edmunds, an auto research firm. At the same time, inventory levels for new vehicles have begun to bounce back, leading many car companies to report higher U.S. auto sales in the first quarter. Tesla on Sunday said it delivered a record number of vehicles in the first three months of the year, when the company cut prices to juice demand. Shares of Tesla fell.
Assessment of Stock Market & Recent Events
Assessing the current state of the stock market and the impact of recent events on it can be complex, but the rise in oil prices and the slowdown in manufacturing activity have definitely been key factors. While energy companies have seen a boost in shares, concerns about inflation and interest rate increases linger. The manufacturing slowdown has also caused worry about the possibility of a recession. Additionally, the White House’s reaction to OPEC+’s move adds another layer of complexity to the situation. Only time will tell how these various factors will continue to shape the stock market and investing landscape.
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