August 19, 2022

Stocks and Oil Prices Fall Sharply

Crude oil prices fell in the wake of the announcement by the I.E.A. that the United States would provide half of the 60 million barrels of petroleum reserves being released to world markets, with other nations releasing the rest, to replace some of the oil production lost due to the conflict in Libya.

The Dow Jones industrial average, which had been down more than 200 points during the day, retraced some ground. In early afternoon trading, it was down 159.99 points, or 1.32 percent, to 11,949.68. The Standard Poor’s 500-stock index fell 15.20 points, or 1.18 percent, to 1,271.94, and the Nasdaq composite average fell 10.78 points to 2,658.51, a fall of 1.40 percent.

“I don’t think this is really the reason why the market is down,” said Stanley Nabi, the chief strategist at Silvercrest Asset Management Group, referring to the I.E.A. report.

“I think the decline is substantially connected to the Fed having lowered economic expectations for the next several quarters. And then the employment data that came out this morning was not particularly robust,” he said. “It is a combination of the two, as well as the fact that the situation in Europe is a problem.”

European markets were also down, in some cases more than 2 percent. Concerns about Greek debt troubles have continued to weigh on the markets, and bank stocks were down nearly 2 percent in the United States.

Jean-Claude Trichet, president of the European Central Bank, said late on Wednesday that the link between the debt problem and banks was “the most serious threat” to financial stability in the European Union, according to Bloomberg News.

“Investors are worried about the same things that have been worrying them for some months,” said Adrian Darley, head of European equities at Ignis Asset Management in London. “It’s the weak U.S. data, a consensus of overheating in China and concerns about Europe. The Greek situation is still unsolved and markets are going to remain very nervous.” 

The slump in the indexes on Wall Street followed a turnaround for both the Dow and the S. P. last week, when both indexes ended the five-day trading period higher for their first weekly gains since April 29.

The Dow had been on a four-day winning streak that ended on Wednesday, when it closed 80.34 points lower. Its lowest close so far this year was 11,613.30 on March 16.

Keith B. Hembre, the chief economist and chief investment strategist at First American Funds of Minneapolis, said that while the concern in the markets was greater about the European situation, the I.E.A. announcement “clearly had a huge impact on crude oil prices.”

After the announcement, the benchmark crude oil price in the United States fell about $5 a barrel to $90.

Oil prices have risen 25 percent in the past year, propelled by turmoil in the Middle East and North Africa and tightening oil markets.

“It is really just kind of accelerating a decline which began back in April,” said Richard Ross, the global technical strategist at Auerbach Grayson. “That was really that first shot across the bow where we had that big decline in commodities across the board.”

He also noted that the crude oil price on Thursday had dipped below its 200-day moving average of $92.58 a barrel. “This is the first time we have broken below that 200-day moving average since Sept. 30 of last year,” he said. “The market reaction is exactly what you would expect.”

If the trend lasts, he added, the lower crude prices would filter through the market and lead to greater supply and falling prices.

The Treasury market traded higher on Thursday as investors digested the news from the Fed on the slower growth and as news continued to filter out from Europe about the debt concerns. The Fed said on Wednesday that the economy was not expanding as quickly as predicted and forecast a growth rate of 2.7 percent to 2.9 percent this year and 3.3 percent to 3.7 percent next year.

In addition, the Labor Department said on Thursday that initial claims for unemployment insurance were up 9,000 to 429,000 last week, according to seasonally adjusted figures. It was above analysts’ forecasts of 414,000.

The report also reflected a revision of 420,000 for the previous week from an initial report of 414,000.

The four-week moving average, which is intended to smooth out the data, was steady at 426,000.

But the Labor Department noted that computer problems hindered the accounting of the numbers in reports from six states, which estimated their figures.

Julia Werdigier contributed reporting from London.

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