U.S. stocks fell in early trading Monday, while oil prices faltered as a multinational agreement to cut crude production failed to assuage concerns that global oil markets will stabilize as the coronavirus pandemic erodes energy demand.
The S&P 500 index shed 0.4%, while the Dow Jones Industrial Average fell 91 points, or 0.4% and the Nasdaq Composite Index retreated 0.5%. Stock benchmarks in Tokyo, Shanghai and Seoul closed lower, while markets in Europe, Australia and Hong Kong remained shut for the Easter holiday.
Brent crude, the global gauge for crude prices, ticked down 0.5%, extending its rout this year to over 52%. Saudi Arabia, Russia and the U.S. agreed to lead a deal to collectively pull out more than 13% of world production. Combined with existing sanctions on Iran and Venezuela and outages in hot spots such as Libya, the measures could help withhold 20 million barrels a day of supplies from the market, OPEC said in the draft press release.
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Specific details have yet to be disclosed, including whether the U.S. would make additional cuts beyond its commitment to compensate for shortfalls in Mexico’s output reduction, and how the U.S. cuts would be implemented. The benchmark for U.S. crude futures wavered between gains and losses before ticking up 0.6% to $22.90 a barrel.
While the accord is aimed at curbing the glut in oil supplies and preventing a further crash in crude prices, traders remain concerned that a protracted recession in many parts of the world will weigh heavily on demand for oil. Amid travel restrictions and a halt in business activity, oil consumption is expected to fall by as much as 30 million barrels a day this month.
The agreement “unfortunately will fall well short of stabilizing oil markets,” Edward Moya, a senior market analyst for foreign-exchange broker Oanda, wrote in a note. “The number of holes in this production cut deal will make it hard for anyone to feel confident that a firm bottom is in place.”
Investors are also concerned that a too-speedy or careless end to lockdown measures in the U.S. and elsewhere may lead to a second wave of infections as calls for easing restrictions gain momentum. Some officials in President Trump’s administration have suggested reopening the U.S. economy by May 1 by allowing some business activity to resume.
“The most imminent challenge facing policy makers is a workable exit strategy that will prevent long-lasting global economic depredation,” Stephen Innes, chief global markets strategist at Sydney’s AxiCorp Financial Services, wrote in a note. “Top officials have no solid plan that will allow Americans to resume work out of harm’s way as the coronavirus pandemic rages.”
The U.S. leads the world in number of confirmed cases, with more than 550,000 infections known, and fatalities of more than 21,700. Globally, the number of confirmed coronavirus cases topped 1.8 million on Sunday.
Later this week, investors will get insights into how the American financial sector is withstanding the turmoil in markets and the economy when major U.S. banks led by JPMorgan Chase, Bank of America and Goldman Sachs Group report quarterly earnings. Some blue-chip American companies including Johnson & Johnson are also scheduled to release results, offering a first look at the impact of social-distancing measures on corporate profits.
Almost 300 companies have withdrawn their financial guidance and about 175 companies have suspended stock buybacks or cut their dividend, according to a Wall Street Journal analysis of public companies in the S&P Composite 1500 Index. A record 17 million people have claimed unemployment benefits as the lockdown spurred a wave of layoffs and furloughs.
Wall Street’s consensus expectations for S&P 500 companies’ earnings remains too high, Goldman Sachs Group analysts said in a note. Expectations for companies’ 2021 earnings will weigh on equity markets as corporate leaders begin to offer fresh projections for their businesses, the analysts wrote.
In Asian equity markets, Japan’s Nikkei 225 dropped 2.3%, while South Korea’s Kospi lost 1.9% and the Shanghai Composite Index slid 0.5%.
“The extreme volatilities in the markets might be behind us,” said Homin Lee, Asia macro strategist at Lombard Odier in Hong Kong. He said the focus of the markets is on Covid-19, the disease caused the coronavirus, and the road map to reopening of the global economy.
Last week, the S&P 500 climbed 12% to record its best weekly performance since 1974. While the index is down 14% for the year, it has rallied 25% from its March 23 low.
The yield on the 10-year U.S. Treasury note ticked up to 0.754%.