Weekly Expert Market Perspectives Park Avenue Securities PAS

Stocks Decline in Week Where Oil Briefly Goes Negative

The large-cap indices declined for the first time in three weeks, as risk sentiment was kept in check by the intense volatility in the oil futures market and valuation concerns. The losses weren't that great, though, with the Dow Jones Industrial Average losing 1.9%, the S&P 500 losing 1.3%, and the Nasdaq Composite losing 0.2%. The Russell 2000, however, gained 0.3%.

The big news item this week was when the price for the May WTI futures contract collapsed to -$37.63/bbl on Monday. The negative print was the first time in history the market saw oil below zero, as no one wanted to take physical delivery given the well-documented storage constraints and lack of demand. The contract expired at $10.01/bbl on Tuesday.

The rest of the WTI crude futures curve was dragged noticeably lower, too, with the June WTI contract touching $6.50/bbl at its low before snapping back to $17.03/bbl by week's end. On a related note, President Trump may have alleviated some worries regarding potential job losses in the industry after vowing to protect energy companies with appropriate funding.

The rebound in oil, and President Trump's comments, helped the S&P 500 energy sector (+1.7%) close in positive territory this week. In fact, it was the only sector to close higher, with the real estate (-4.4%), utilities (-3.8%), and consumer staples (-3.2%) sectors declining the most.   

Valuation concerns likely contributed to the week's decline, based on a general observation that the S&P 500 was up 31.2% from its March 23 low coming into the week. That rally was primarily driven on hope that the economy, and coronavirus, will not be worse than the data seen in March and April. 

It was this same hope, though, that perhaps explained why the market barely declined. Notably, weekly initial claims showed signs of easing with claims for the week ending April 18 decreasing by 810,000 to 4.427 million (Briefing.com consensus 4.0 million). 

In addition, the economy will be buttressed by another $484 billion in stimulus after the White House passed a relief bill for small businesses, hospitals, and COVID-19 testing. Separately, some therapeutic hopes were somewhat dampened after a report that Gilead's (GILD) remdesivir drug flopped in its first randomized clinical trial in China. Note, this was different from the trial in Chicago that showed promising signs. 

U.S. Treasuries saw limited action this week. The 2-yr yield was unchanged at 0.20%, and the 10-yr yield declined five basis points to 0.60%. The U.S. Dollar Index advanced 0.5% to 100.25.

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Data and rates used were indicative of market conditions as of the date shown and compiled by Briefing.com. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Each company’s security affects the index in proportion to its market value. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Dow Jones Industrial Average is a widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials, but also includes financial, leisure and other service-oriented firms. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.


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2020-99838 (Exp 7/20)