U.S. stocks are broadly lower midday Monday, as investors digested developments in a stabilizing crude-oil market, and contended with the effects of a rising dollar, as bond markets are closed in observance of Veterans Day.
Read: Which markets are closed on Veterans Day?
How are benchmarks performing?
The Dow Jones Industrial Average DJIA, -1.64% was trading about 420 points, or 1.6%, lower at 25,570, the S&P 500 SPX, -1.34% was falling 37 points, or 1.3%, at 2,743, while the Nasdaq Composite Index COMP, -2.13% was also on the decline, down 157 points, or 2.1%, at 7,249.
On Friday, the Dow fell 201.92 points, or 0.8%, at 25,989.30, and the S&P 500 lost 25.82 points, or 0.9%, at 2,781.01, while the Nasdaq Composite Index retreated 123.98 points, or 1.7%, at 7,406.90.
For the week, however, all three main benchmarks posted gains. The Dow registered an increase of 2.8%, the S&P 500 returned 2.1% over the past five sessions, while the Nasdaq eked out a 0.7% gain.
What drove the market?
Representatives from Saudi Arabia over the weekend said that the kingdom would cut its oil production, while the Organization of the Petroleum Exporting Countries weighs a more sweeping reduction of output by members of the oil cartel.
West Texas Intermediate crude for December delivery CLZ8, +1.28% rose 25 cents, or 0.4%, at $60.44 a barrel on the New York Mercantile Exchange. The contract settled Friday at $60.19, marking the lowest front-month contract settlement since March 8.
A shock lower in oil has raised questions among investors about the health of the global market and investors will closely watch talk of cuts to crude production that could stabilize moves in the commodity, which entered a bear market, defined as a drop of at least 20% from a recent peak, last week.
Worries about oil’s effect on the market come as investors continued to fret about China and U.S. trade tensions, with President Donald Trump set to meet with Chinese President Xi Jinping later in November at the sidelines of the G-20 summit to discuss resolving their trade disagreements.
A rising dollar is also weighing on markets, as a rise in the greenback can hurt sales of multinational companies, making goods relatively more expensive to customers purchasing abroad.
What did the strategist say?
Michael Schoonover, portfolio manager at Catalyst Funds told MarketWatch that recent market declines suggests we’re seeing the partial deflation of a “passive investing bubble,” in which stock prices have been driven irrationally higher by a growing share of money invested in passive index funds and exchange-traded funds. ”We’ve seen generally low volume of late, which suggests that institutional money isn’t driving the market,” he said.
Because many passive index funds are weighted by market capitalization, massive companies like Apple and Amazon have been responsible for much of the market’s gains in 2018, creating a self -reinforcing cycle that leads to higher and higher valuations for the companies dominating the S&P 500, according to Schoonover. Now we are seeing the inevitable repricing of stocks that were artificially boosted by flows into passive, low-fee products.
“The price of oil has re-entered into a bear market, suggesting that demand from the global economy has weakened as the trade war hits the global economy,” wrote Peter Cardillo, chief market economist at Spartan Capital, in a Monday research note.
Craig Callahan, president and founder of Icon Advisors says that oil’s bear market has weighed heavily on the market in general, and energy exploration firms in particular, creating buying opportunities for value investors. “I’m considering adding to my holdings in the energy sector,” Callahan told MarketWatch.
“These firms have hedged the price of oil, and projections for 2019 [earnings-per-share] growth are 25% for the sector,” compared with just 9% for S&P 500, Callahan said.
Which stocks were in focus?
Shares of Alibaba Group Holding Ltd.’s BABA, -1.55% were in focus after Chinese consumers bought $30.8 billion worth of goods in 24 hours on Singles Day, surpassing last year’s $25.3 billion. The stock is down 2% Monday. Chinese retailer JD.com also stands to benefit from the holiday—shares of the firm are up 1.6%.
Apple Inc.’s stock AAPL, -4.17% are down 4.4%, after Lumentum Holdings Inc. LITE, -29.22% cut its earnings and revenue outlook, saying it received a request from “one of its largest industrial and consumer customers for laser diodes for 3D sensing” to “materially reduce shipments,” which is believed to be Apple. Meanwhile, J.P. Morgan analysts cut their earnings estimates for 2018 and 2019, downgrading the stock.
SAP SE SAP, -6.21% has agreed to purchase Qualtrics International Inc. for $8 billion in cash, the companies announced Sunday. The company’s stock is down 6.2% Monday morning.
Shares of Athenahealth Inc. ATHN, +9.71% are rising 9.7% Monday morning, after the health care services firm confirmed that it was being acquired by affiliates of Veritas Capital and Elliott Management Corp.’s Evergreen Coast Capital. The deal is worth $5.7 billion, and values the company at $135 per share, a 12% premium.
Shares of Abiomed, Inc. ABMD, -16.48% are down 15.7%, after the results of an FDA study into one of the firm’s heart-pump products disappointed investors.
Goldman Sachs Group Inc. GS, -6.30% stock is down 5.7% Monday, putting it on pace for its largest percentage loss in more than two years.
Shares of Aurora Cannabis Inc. ACB, -3.76% are falling 6%, erasing earlier gains, despite the Canada-based cannabis company reporting Monday fiscal first-quarter net earnings that rose to $105.5 million from $3.6 million a year ago, and from $79.9 million in the previous quarter.
British American Tobacco PLC BTI, -8.32% Philip Morris International Inc. PM, -0.92% and Altria Group Inc. MO, -1.84% stocks are extending their losses Monday, after The Wall Street Journal on Friday reported that the Food and Drug Administration was planning to propose a ban on menthol cigarettes. British American Tobacco shares have fallen 0.9% , Philip Morris stock is declining 1.1%, while Altria stock has retreated 1.9%.
Shares of Pacific Gas and Electric Corp. PCG, -17.44% are tumbling more than 16% at the start of trade, as the electric utilities company continues to deal with the fallout of wildfires throughout its base of operations in California. The company announced Friday afternoon that roughly 25,000 of its customers were without power. The stock of another California-based electric utility, Edison International EIX, -10.98% , is down 9.8% Monday morning.
How did other markets trade?
In Asia ADOW, +0.03% major benchmarks traded in the red, while European indexes SXXP, -1.01% were facing selling pressure. The dollar, measured by the ICE U.S. Dollar Index DXY, +0.48% was up 0.4% at 97.30.
Gold GCZ8, -0.41% was trading slightly lower as the dollar strengthened.
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