Wall Street tumbled on Monday after U.S. crude futures turned negative for the first time ever, with traders forced to pay to unload crude as the May contract expired during a global economic slump unleashed by the coronavirus outbreak.
The S&P energy index tumbled 3.7% after the front-month May U.S. West Texas Intermediate (WTI) contract actually turned negative, with sellers offering $37.63 a barrel to any traders willing to take it.
With billions of people staying home around the world due to the coronavirus, physical demand for crude has dried up.
“What the energy market is telling you is that demand isn’t coming back anytime soon, and there’s a supply glut," said Kevin Flanagan, head of fixed income strategy at WisdomTree Asset Management in New York.
He said lower oil prices could boost the economy if it encouraged people to buy more fuel, "but that requires people getting out.”
Year to date, the energy index has lost 45%, by far the worst performer among 11 sectors.
Weathering the broad market sell-off, Amazon rose 0.8% and Netflix jumped 3.4%. Those companies have benefited from additional demand as millions of people stay home due to the coronavirus. Netflix reports its quarterly results on Tuesday after the bell.
Helped by a $2 trillion U.S. government package to stimulate the economy, and by bets that the virus was nearing a peak in the United States, the S&P 500 has climbed over 25% from its March low.
The benchmark index remains almost 17% below its February record high, and analysts have warned of a deep economic slump from the halt in business activity and millions of layoffs.
U.S. jobless claims touched 22 million in the four weeks to April 11, and analysts have forecast as many as 5 million more in the latest week. A reading of an April U.S. manufacturing survey, also due on Thursday, is expected to slide to recession-era levels.
The Dow Jones Industrial Average fell 592.05 points, or 2.4%, to 23,650.44, the S&P 500 lost 51.49 points, or 1.8%, to 2,823.16 and the Nasdaq Composite dropped 89.41 points, or 1.03%, to 8,560.73.
Even with Monday's decline, the S&P 500 has rallied 26.1% from its March low, thanks in part to the extreme easing steps taken by the Federal Reserve and a $2.3 trillion stimulus package passed by Congress.
In extended trade, International Business Machines Corp rose 0.5% after it posted quarterly revenue slightly lower than Wall Street expected, but beat profit targets.
During Monday's session, volume on U.S. exchanges was 12.3 billion shares, compared to a 13.4 billion average for the full session over the last 20 trading days.
Declining issues outnumbered advancing ones on the NYSE by a 2.99-to-1 ratio; on Nasdaq, a 1.62-to-1 ratio favored decliners.
The S&P 500 posted 10 new 52-week highs and no new lows; the Nasdaq Composite recorded 39 new highs and 20 new lows.
GLOBAL MARKETS
The historic plunge in U.S. crude oil prices pulled global equity markets lower and helped drive bond prices higher as investors sought out safe havens amid the economic carnage of the coronavirus pandemic.
With some global crude storage facilities nearly at capacity, the front-month May benchmark U.S. crude contract fell 307.44%, to -$37.90 per barrel, the first time in history that oil futures traded in negative territory. Brent was at $26.05, down 7.23%.
"For oil there is a bit of a technical story (with storage), but still, if energy consumption is down 30% and OPEC reduces supply by 10%, there is still a large gap," said Elwin de Groot, Rabobank's head of macro strategy.
MSCI's gauge of stocks across the globe shed 1.15%, following broad declines in Asia and slight gains in Europe driven by the healthcare sector.
Yet analysts are likely underestimating the impact of the global economic lockdown on corporate earnings results, said Jonathan Golub, chief U.S. equity strategist at Credit Suisse Securities.
The United States has by far the world's largest number of confirmed coronavirus cases, with more than 750,000 infections and over 40,500 deaths, according to a Reuters tally.
The dollar edged higher as the tumbling oil prices pressured oil-linked currencies. The dollar index, which measures the greenback against a basket of major currencies, rose 0.121%, with the euro down 0.15% to $1.086.
Bond markets suggested investors expect tough economic times ahead. Benchmark 10-year notes last rose 12/32 in price to yield 0.6179%, from 0.656% late on Friday, compared with 1.91% at the start of the year.
"We are dealing with scales of declining economic activity that nobody has seen before. The potential hit to GDP in the second quarter this year will probably far exceed what we saw at the worst point of the financial crisis," Capital Group economist Robert Lind said in a note.
Selling pressure on Italian government bonds has returned in the past week, undoing some of the benefits of the European Central Bank's massive bond-buying scheme, after euro zone politicians failed to agree to common debt issuance as a means of addressing the crisis.
Italian Prime Minister Guiseppe Conte used an interview with Germany's Sueddeutsche Zeitung on Monday to repeat calls for the EU to issue common euro zone bonds to demonstrate the bloc's solidarity.
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