Decline in energy shares weighed on benchmarks on Wednesday. Energy shares fell due to drop in oil prices. Increase in crude inventory levels adversely affected oil prices. Meanwhile, an upbeat private sector jobs report strengthened the case for a rate hike in the near term. The S&P 500 snapped a five-month rally to end in the red in August, while the Dow’s six-month winning streak also came to an end. However, the Nasdaq bucked the declining trend and closed in positive territory for the week.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.
The Dow Jones Industrial Average (DJI) decreased 0.3%, to close at 18,400.88. The S&P 500 fell 0.2% to close at 2,170.95. The tech-laden Nasdaq Composite Index closed at 5,213.22 losing 0.1%. The fear-gauge CBOE Volatility Index (VIX) increased 2.1% to settle at 13.39. A total of around 6.82 billion shares were traded on Wednesday, higher than the last 20-session average of 5.98 billion. Decliners outpaced advancing stocks on the NYSE. For 59% stocks that declined, 37% advanced.
Energy Drags Stocks Lower
A tumble in the price of oil weighed on energy shares. Oil prices fell after data showed that U.S. crude stockpiles increased to another record level. The U.S. Energy Information Administration said that domestic crude supplies rose by 2.3 million barrels in the week ended Aug. 26. WTI crude fell 3.7% to $46.70 per barrel. Brent crude also declined 2.8% to $47.04 a barrel.
The Energy Select Sector SPDR (XLE (NYSE:XLE)) declined 1.6% yesterday, its steepest one-day percentage decline since Aug 1. Shares of Dow components Exxon Mobil Corporation (NYSE:XOM) (XOM) and Chevron Corporation (NYSE:CVX) (CVX) dropped 0.4% and 1.1%, respectively.
Jobs Data Strengthens Rate Hike Chances
Meantime, a better-than-expected private sector employment data bolstered chances of an imminent rate. Fed Vice Chairman Stanley Fischer has already said that “we’re reasonably close to what is thought of as full employment”.
According to the Automatic Data Processing Inc (NASDAQ:ADP). (ADP), about 177,000 jobs were added in the private sector in August, more than analysts’ expectations of 175,000 job additions. Private payrolls data for July was also revised higher to 194,000 from 179,000 (read more: ADP Reports 177,000 Increase in August Payrolls).
Separately, the National Association of Realtors (NAR) reported that the Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 1.3% from June to 111.3 in July, its second highest reading in over a decade.
Monthly Round Up
For the month the S&P 500 and the Dow declined 0.1% and 0.2%, respectively. However, the tech-laden Nasdaq managed to settle in the green, gaining 1%. Investors continued to grapple with the timing of a rate hike, with Fed Chairwoman Janet Yellen saying that the case for hiking federal funds rate has gained in strength in “recent months”, mostly due to a job market rebound following a slump in hiring in spring. (read more: 5 Stocks to Buy on Encouraging Employment Data).
A potential interest rate hike this year dragged the broader markets down in August since such low rates had boosted the markets for a considerable period of time. Separately, Utilities Select Sector SPDR (XLU) dropped 5.5% in August, the most among the S&P 500 sectors. This is because a rate hike will increase cost of capital and eventually decrease profitability (read more: 5 High Dividend Stocks to Bet Against a Rate Hike).
Expectations that the Fed will move closer to a rate hike call helped the dollar hit multi-week highs, but a strong dollar erodes the earnings of U.S. firms that sell their goods overseas. The dollar’s strength along with crude oversupply also weighed on oil prices.
The oil market has already gone through a topsy-turvy ride in August. While the crude oil entered bear market territory during the beginning of August on subdued demand, it did stampeded into a bull market territory during the third week of last month, thanks to increase in expectations that top oil producing countries like Russia and Saudi Arabia will cap output (read more: The Top Oil Stocks to Buy Now).
Stocks that Made Headlines
Costco (NASDAQ:COST) Posts Flat Comps in August; Sales Up
Costco Wholesale Corporation (COST) reported flat comparable-store sales (comps) for the month of August. (Read more)
Salesforce Q2 Earnings Beat Estimates; Guides Low
The world’s leading CRM platform provider, Salesforce.com Inc (NYSE:CRM). (CRM) reported better-than-expected second-quarter fiscal 2017 results. (Read More)
Weyerhaeuser Sells Liquid Packaging Facility to Nippon
Forest product manufacturer and supplier Weyerhaeuser Company (NYSE:WY) (WY) announced that it has completed divesting its liquid packaging board business to Nippon Paper Industries Co., Ltd. (Read More)
C.H. Robinson Announces APC Logistics Acquisition
C.H. Robinson Worldwide Inc. (CHRW) announced its intention to acquire APC Logistics for around AUD 300 million. (Read More)
Thermo Fisher Closes FEI Deal, Grows in Electron Microscopy
Thermo Fisher Scientific, Inc. (TMO) recently completed its earlier announced mega $4.2 billion acquisition of FEI Company. (Read More)
Alphabet (NASDAQ:GOOGL) to Move Struggling Nest Lab Platform to Google
Alphabet Inc. (GOOGL) is reportedly moving its home-automation subsidiary Nest Lab’s entire platform team to Google. (Read More)
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