Stocks continued their decline and today were joined by energy stocks falling with plunging gas and oil prices.
Stocks Picked Up Where They Left Off on Friday with Another Sell-Off
Falling Oil and Gas Prices Push Energy Sector to the Bottom
Did a Bubble in EVs Quietly Burst?
Shawn Cruz Director of Derivative Strategy, TD Ameritrade
(Monday Market Close) The Nasdaq Composite ($COMP) dragged other indexes lower to start the week’s trading, falling another 4.29% and extending its bear market to a drop of 27% from its all-time high. The technology and consumer discretionary sectors powered the Nasdaq’s losses.
The Technology Select Sector Index fell 3.87% while the Consumer Discretionary Select Sector Index dropped 4.3% as mega-caps lost ground. By the close, Tesla (TSLA) fell 9%, Amazon (AMZN) lost 5.12%, and Apple (AAPL) slid 3.08%.
However, the energy sector was the worst performing group in response to a 6% drop in crude oil futures and an 12% plunge in natural gas futures. The Energy Select Sector Index fell 8.27% on the day. Natural gas has fallen about 19% in the last two days but only after rallying 145% from the first of the year through May 5. The current slide appears to be in response to Saudi Arabia cutting oil prices for Asian buyers due to weak demand related to China’s COVID-19 lockdowns.
Despite the 10-year Treasury yield (TNX) moving higher in Monday’s premarket trading, the benchmark yield fell 44 basis points by the close as investors abandoned stocks in favor of bonds. Investors were also buying up consumer staples companies like Walmart (WMT), Campbell’s Soup (CPB), Sprouts Farmers Market (SFM), Kroger (KR), Kellogg (K) among others. The Consumer Staples Select Sector Index was the only positive sector throughout the day, but finally turned negative just before the close.
The S&P 500 (SPX) finished the day 3.2% lower with the benchmark index closing slightly below 4,000. The Dow Jones Industrial Average ($DJI) fell 1.99%. However, the Russell 2000 (RUT) almost kept pace with the Nasdaq, falling 4.21% and punctuating the point that investors just aren’t willing to hold riskier assets right now.
On Wednesday, investors will face another big inflation report as April’s Consumer Price Index (CPI) numbers arrive before the market open. Analysts expect to see the CPI grow 8.5% year over year, reflecting the breakneck pace of inflation. If the number comes out higher than expected, the Federal Reserve may be forced to reconsider last week’s “no 75-basis-point hike” stance.
CHART OF THE DAY: BREAK DANCING. The Nasdaq Composite ($COMP—candlesticks) broke support around the 12,000 level. The next potential level of support could be just below 11,000. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
Electric vehicles (EV) are known for their quiet, almost UFO-like sound, but their stock prices have made a lot more noise. Today, investors clearly didn’t like what they heard. Could it be possible that the EV’s bubble has quietly burst? To begin, Monday’s sell-off in Tesla (TSLA) took the stock down 35% from its November all-time high.
And before the open, Ford (F) announced plans to sell 8 million of its roughly 100 million shares in EV truck maker Rivian (RIVN) now that the company is past its IPO lockout period. According to CNBC, another investor plans to sell too. Such sales don’t mean that Ford or other investors no longer believe in the company. In fact, Ford and Amazon (AMZN), another big Rivian investor, appear to be hanging on to the majority of what they own. However, RIVN fell 20.88% on the day and is down 87% from its November high.
However, other EV makers are now trading well off their all-time highs: Nio (NIO) is down 79%, Lucid (LCID) has lost 73%, Fisker (FSK) is trading down 67% and Li Auto (LI) is down 56%. Just because bubbles burst, it doesn’t mean the product is a failure—it could mean that investors were getting a little ahead of themselves. In the past two years, with extra liquidity from the Fed and Congress, investors found themselves with extra funds that likely contributed to overinflated EV stock prices.
May 10: Earnings from Occidental (OXY), Suncor Energy (SU), and Sysco (SYY)
May 11: Consumer Price Index (CPI) and earnings from Toyota (TM), and Walt Disney (DIS)
May 12: Producer Price Index (PPI) and earnings from Brookfield (BAM)
May 13: Michigan Consumer Sentiment and earnings from Honda (HMC)
May 16: Earnings from Take-Two (TTWO) and James Hardie Industries (JHX)
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