Stocks And Index ETFs Are Selling Off Amid Disaster In Crude Market

For the second day in a row equity markets are getting smacked back down as investors are reeling from an all-out crash in the crude market.

U.S. stocks plummeted on Tuesday, as the key benchmark indices and ETFs are on pace a the second day of losses, amid investor panic that is the result of a catastrophic decline in oil prices. In addition, investors await a new round of corporate earnings reports, and developments in Washington on highly coveted congressional aid for businesses affected by the coronavirus pandemic.

The Dow Jones Industrial Average sank more than 600 points, or 2.8%, while the S&P 500 index shed 88 points, or 3.1%, to trade at 2,733, and the Nasdaq Composite Index plummeted almost 320 points or 3.7%. All three indices are currently still in sell-off mode as of 1230pm EST.

Index ETFs that follow the stock indices are suffering losses as well. The Invesco QQQ Trust (NASDAQ: QQQ) has sold off 3.51%, the SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) has lost 2.5%, and the SPDR S&P 500 ETF (NYSEArca: SPY) has fallen 2.8%.

Losses on Tuesday are a continuation of the downdraft that started on Monday, as equities reacted to the disaster in crude oil, where crude prices trading into negative territory for the first time in history, on account of a massive oversupply and limited storage.

WTI crude oil, which expires at the end of the day’s trade, fell $55.90 a barrel, or 306%, to settle in negative territory for the first time in history.

Many investors are hopeful that stocks might make a V-bottom recovery, something extremely unlikely given historical precedent. With oil getting trounced, it appears investors may be admonished by markets that the worst is yet to be completed.

“The oil market is sending a bold warning that economic growth may not recover nearly as quickly as some equity investors would hope,” wrote Tom Essaye, president of the Sevens Report, in a Tuesday note to clients. “The S&P 500 is pricing a relatively quick return to a normal economy, and continued low oil prices are pushing back against that assumption.”

Despite the sizable rebound stocks have made this year so far, analysts also still caution investors that there could be more downside to come, and not to be too cavalier with assets.

“The bottom line is that given we are facing the deepest recession and highest unemployment rate since the war and equities were not exactly cheap before the virus hit, we think it unlikely that we get away with ‘only’ a [15%] fall in the S&P,” wrote Inigo Fraser Jenkins, co-head of portfolio strategy at Bernstein Research. “We think we will face an extended period of higher volatility and also think it highly likely that we see a pull-back in the near term as the difficulties of exiting lockdown (or the risk of a re-imposition of lockdown) become apparent.”

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