Oil prices rose sharply thanks in part to a logjam in the Suez Canal. (Really: A Panamanian container ship ran aground Tuesday, clogging the Egyptian passage through which 10% of the world’s seaborne oil trade passes.)
While the impact on prices is expected to be short-lived, U.S. crude oil futures jumped 5.9% to $61.18 per barrel, sparking strong gains in Dow component Chevron (CVX, +2.7%) as well as other large energy stocks including ConocoPhillips (COP, +2.9%) and EOG Resources (EOG, +4.2%).
Also Wednesday, IHS Markit’s “flash” reading of the service industry’s February performance revealed the strongest growth in more than six years, while manufacturing also sped up.
The Dow Jones Industrial Average, which had traded in the black for all but the final couple minutes of Wednesday’s session, declined marginally to 32,420. Chevron provided ballast, as did industrial firms Caterpillar (CAT, +1.4%) and Honeywell (HON, +1.7%).
Financials (XLF, +0.4%) also exhibited a little relative strength. In her Congressional testimony on Wednesday, U.S. Treasury Secretary Janet Yellen “made an interesting comment on stock buybacks,” notes Anu Gaggar, senior global investment analyst for Commonwealth Financial Network. “She said that financial institutions look healthier and should have the flexibility to return capital to shareholders. Greater flexibility for buybacks and dividends could be a positive for bank stocks.”
Other action in the stock market today:
The S&P 500 dipped 0.6% to 3,889.
The Russell 2000 had another brutal session, finishing 2.4% lower to 2,134. The small-cap index has dropped nearly 9% in the past week.
GameStop (GME, -33.8%) was in the spotlight after reporting its fourth-quarter earnings Tuesday evening, and its shares provided fireworks … just not the right kind. “Sales declined 30.2% to $1.0B, missing consensus, with comps falling 24.6%, also missing expectations,” says CFRA analyst Camilla Yanushevsky. “After surging 135% year-to-date, very little has changed in GME’s fundamental story. We hold concerns over GME’s ability to maintain competitive positioning, namely due to high dependence on brick-and-mortar and secular shift away from physical gaming and toward digital and mobile.”
Gold futures improved by 0.5% to settle at $1,733.20 per ounce.
Bitcoin prices tumbled 4.4% to $54,770. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
The Nasdaq’s Turbulence Continues
We can’t blame the usual bugaboo, though; Treasury yields were on the decline Wednesday. But that’s not the only problem the index faces.
“The Nasdaq could drop 20% and still be trading at 30 times (earnings), and the S&P could drop 20% and still have a P/E over 20. Those are both historically high,” says Sean O’Hara, president of Pacer ETFs. “We are getting reports of great earnings growth and GDP growth, but both earnings and GDP are still below where they were going into 2020. So, the broad market is expensive.”
Among other things, that means it might pay to identify growthier trends, then wait for the right moments to buy at lower prices, be they video game stocks, 5G plays or a host of other high-quality (but overheated) picks.
Meanwhile, remember: Dividends ensure you get paid, even in sideways markets. While there are dozens of ways to peel that orange, one of the simplest is hunkering down into a diversified income fund or two, and keeping fees low so you enjoy more of your yield. Among your options are a quartet of highly thought-of Vanguard dividend and income funds that we’ve just evaluated – a blend of actively managed and index funds for stock and bond investors alike.