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While you were sleeping: Energy stocks slide with oil

Wednesday 8th February 2017

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A decline in energy stocks weighed on Wall Street, while investors digested comments from US Federal Reserve officials about the potential for an interest rate increase next month.

Philadelphia Fed President Patrick Harker said he could support a hike at the Federal Open Market Committee’s next two-day meeting in March.

“I think March is on the table. I would never take a meeting off the table,” Harker told reporters after a speech in San Diego, according to the Wall Street Journal.

Meanwhile, Minneapolis Fed President Neel Kashkari wrote an essay, posted on the bank’s website, about his decision at last week’s FOMC meeting to vote in favour of keeping interest rates unchanged.

“We are still coming up somewhat short on our inflation mandate, and we may not have yet reached maximum employment,” Kashkari said. “That suggests that somewhat accommodative monetary policy would still be appropriate to close those gaps.”

Wall Street was mixed. In 1.25pm trading in New York, the Dow Jones Industrial Average rose 0.2 percent while the Nasdaq Composite Index added 0.1 percent. In 1.10pm trading, the Standard & Poor’s 500 Index slipped 0.06 percent.

In the Dow, advances in shares of Boeing and those of Apple, which recently traded 1.5 percent and 1.1higher respectively, outweighed declines in shares of Chevron and those of Exxon Mobil, recently down 1.6 percent and 1 percent respectively.

Energy stocks followed the price of oil lower, with crude falling below US$52 a barrel.

While concern about the impact of US President Donald Trump’s controversial start in office is weighing on equity markets, the outlook for corporate profits and the economy remains positive.

"We've been getting some back and forth between the new administration's business-friendly policies versus the disruptions economically and politically from the immigration and trade-related issues," Jason Pride, director of investment strategy at Glenmede in Philadelphia, told Reuters.

"However, at the end of the day, the expansion is continuing, the economy and earnings are growing and that should support equities,” Pride noted. 

A Commerce Department report showed the US trade deficit narrowed 3.2 percent to a seasonally adjusted US$44.26 billion in December from the previous month. 

Protectionist policies, as championed by Trump, won't get rid of the deficit, some warned.

"When an economy is at full employment, an acceleration in demand tends to be accompanied by a pickup in import growth and a wider trade deficit," John Ryding, chief economist at RDQ Economics in New York, told Reuters. "The US simply does not have enough spare labour and capacity at any exchange rate to close the deficit, which will likely widen in 2017 and 2018."

In Europe, the Stoxx 600 Index finished the session with a 0.3 percent advance from the previous close. The UK’s FTSE 100 Index rose 0.2 percent, while Germany’s DAX Index gained 0.3 percent.

France’s CAC 40 Index slid 0.5 percent.

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