Trade War Slams Crude Oil, Stocks and Bond Yields

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Trade War Slams Crude Oil, Stocks and Bond Yields

Major Moves

Crude oil is caught in a geopolitical supply-and-demand tug of war, driving it in two opposed directions.

On the one hand, supply worries, such as the United States’ sanctions on Iranian oil, slowing shale output in the United States, and polluted Russian oil, are attempting to push the price of crude oil upward.

On the other hand, demand worries, such as a possible slowdown in the global economy as a result of the US-China trade war, are attempting to drive the price of crude oil down.

Right now, demand concerns are triumphant. As trade tensions rose, crude oil fell below $60 per barrel for the first time since March 29th, closing at $57.74.

This was bad news for independent oil and gas businesses such as Hess Corporation (HES), Devon Energy Corporation (DVN), and Noble Energy, Inc. (NBL), which fell 7.93%, 7.30%, and 6.93% today, respectively. The lower crude oil prices fall, the less money these businesses earn every barrel of oil extracted from the earth.

If trade discussions between the United States and China do not improve soon, crude oil prices are expected to fall further. A dramatic decrease in production by the Organization of Petroleum Exporting Countries (OPEC) may help stabilize oil prices, but that is unlikely to happen until the organization meets later this summer, if at all.

S&P 500

Today, the S&P 500 narrowly escaped completing a head and shoulders bearish reversal pattern. The index fell to an intraday low of 2,805.49 – exactly on the possible neckline of the bearish pattern – before recovering into the final bell. The index finished at 2,822.24, but traders still have a lot of work to do to get the stock market back on track before the three-day Memorial Day holiday.

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As previously said, independent oil and gas equities took the brunt of the damage, but pullbacks in huge technology firms like as United Technologies (UTX), Broadcom, Inc. (AVGO), and International Business Machines Corporation (IBM) didn’t assist the optimistic cause much.

The utilities sector was the only bright spot on Wall Street today. Utilities companies surged as Treasury rates dropped, making dividend payouts on these equities more appealing in contrast, and traders began to shift money into more protective sectors.

The top three performing utilities stocks were Eversource Energy (ES), The AES Corporation (AES), and Duke Energy Corporation (DUK), although their gains were modest at 1.49%, 1.45%, and 1.24%, respectively.

Tomorrow, keep an eye on support at 2,816.94. If it can’t hold going into the holiday weekend, the S&P 500 might see a bigger drop.

Read more:

How Does Crude Oil Affect Gas Prices?

5 Steps to Making a Profit in Crude Oil Trading

Oil & Currencies: Understanding Their Correlation

Risk Indicators – TNX

You have two fundamental choices for diversifying your portfolio. You may purchase equities or bonds, such as US Treasuries.

Now, I understand that the development of exchange-traded products (ETPs), such as exchange-traded funds (ETFs) and exchange-traded notes (ETNs), has enabled you to diversify your portfolio into a wide range of other assets, such as gold, oil, and foreign currencies. However, when it comes down to it, most traders still allocate the majority of their investing capital to equities and bonds.

When traders are more optimistic in the future growth of the US and global economies, they tend to put more money into stocks and less money into bonds. When traders are less confidence in the growth of the US and global economies, they tend to put less money into equities and more money into bonds. Knowing this, we may look for indicators that traders are shifting money from one asset class to another and infer what is going on with trader confidence.

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Today, we saw evidence that traders are pouring money into Treasuries in large quantities. When traders begin to move money into Treasuries, the price of those Treasuries rises to meet the increased demand. Because prices and rates have an inverse relationship, this causes Treasury yields to fall.

Since November 2018, the 10-year Treasury Yield (TNX) has been declining as an increasing number of traders have moved money out of equities and back into Treasuries. Its most recent support bounce occurred on March 27, when it recovered from 2.36% support.

Unfortunately for bulls in the stock market, that level did not hold today. As more traders moved money out of equities and into Treasuries, the TNX broke through support and closed at 2.30%, its lowest level since Oct. 17, 2018.

This tells me that some traders are losing faith in equities. It’s much too early to panic. After all, the S&P 500 has been rising while the TNX has been declining in 2019, but this is a hint that bullish momentum is fading.

Read more:

Which Economic Factors Impact Treasury Yields?

JPM’s Dimon Sees 10-Year Treasury Yields at 5%

Understanding Treasury Yield and Interest Rates

Bottom Line – Trading the Trade War

On Wall Street, trading the trade war has proved to be very tough. These days, it seems like each bit of potentially good or negative news has the power to move the market higher or down.

Hopefully, we’ll see some respite soon, but for the time being, volatility and uncertainty seem to be the main themes in the market.

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Read more:

Why the Trade War Won’t Crush U.S. Corporate Profits

Tesla will fall much farther as Morgan Stanley reduces its bear case to $10.

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