[New York Stock Market] Mixed Close Amid 6% Surge in Oil Prices... Dow Up 0.98%

The three major indices of the U.S. New York stock market closed mixed on the first trading day of the second quarter, April 3 (local time). International oil prices surged more than 6% following OPEC+’s announcement of production cuts, leading to a notable rally in energy-related stocks. Concerns also emerged that the rising oil prices could increase inflationary pressures, complicating the Federal Reserve’s (Fed) interest rate calculations.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 327 points (0.98%) from the previous close to finish at 33,601.15. The large-cap focused S&P 500 index gained 15.20 points (0.37%) to close at 4,124.51. In contrast, the tech-heavy Nasdaq index fell 32.45 points (0.27%) to end at 12,189.45.

Within the S&P 500, energy, healthcare, materials, and financial stocks showed gains, while real estate, utilities, consumer discretionary, and technology stocks declined. Particularly, energy stocks surged nearly 5% after OPEC+ announced production cuts starting in May. Chevron’s stock price jumped more than 4.16%, driving the Dow’s gains. ExxonMobil closed up 5.90%, and Occidental Petroleum rose 4.40%. Health insurers such as UnitedHealth Group (+4.57%) also saw their shares rise following the regulatory announcement on individual Medicare plan rebate rates.

Meanwhile, Tesla’s stock dropped over 6% after its first-quarter vehicle deliveries (422,875 units) fell short of Wall Street expectations, raising the possibility of further price cuts. Rivian also closed down 1.61% as its first-quarter vehicle production and deliveries declined compared to the previous quarter and missed Wall Street forecasts. Macy’s shares rose more than 7% after JP Morgan raised its price target.

[Image source=Reuters Yonhap News]

Investors closely monitored the impact of OPEC+’s surprise production cut announcement on international oil prices, economic indicators, and future interest rate policies. On this day at the New York Mercantile Exchange, May delivery West Texas Intermediate (WTI) crude oil prices closed at $80.42 per barrel, up 6.28% from the previous close. This marked the largest increase since April 12 of last year. The international crude oil benchmark Brent crude also rose about 6%, trading near $85 per barrel.

Currently, the market expects Brent crude prices could surge to as high as $100 per barrel by the end of the year. Goldman Sachs has raised its Brent crude price forecasts by $5 each to $95 per barrel for the end of this year and $100 per barrel for the end of next year following the production cut decision. The economic media outlet CNBC reported that "following the Fed’s interest rate hikes and recent banking sector instability, the sharp rise in international oil prices could pose an additional threat to the global economy."

Accordingly, there is widespread assessment that the Fed’s interest rate calculations have become more complicated. Victor Fonspord of Rystad Energy predicted, "This could pour fuel on global inflation and trigger a hawkish interest rate hike stance among central banks worldwide." There are concerns that the sharp rise in international oil prices could further stimulate inflation. Phoenix Capital also described the production cut decision as "an inflation problem," noting that "energy prices and used cars are the only categories that have declined in inflation indicators over the past 12 months."

James Bullard, president of the Federal Reserve Bank of St. Louis and a prominent Fed hawk, said in a Bloomberg TV interview that day, "(OPEC+’s production cut decision) was surprising," adding, "Oil prices are volatile and hard to keep up with. Some of this leads to inflation, which could make the Fed’s job of lowering inflation a bit more difficult."

Currently, market expectations for the Fed to raise interest rates by 0.25 percentage points at the May FOMC meeting?known as a baby step?have strengthened. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of the afternoon of this day, federal funds futures markets reflect over a 56% probability of a baby step, up from the previous day’s 48%. The probability of a rate hold stands at 43.6%.

On the other hand, some argue that since the Fed mainly watches core inflation indicators that exclude volatile oil and food prices, a more cautious approach is warranted. Although oil prices surged sharply on this day, some analyses suggest the upward trend may be limited due to uncertainties in future crude oil demand.

The economic indicators released on this day were weak. The U.S. March ISM Manufacturing PMI stood at 46.3, falling below the 50 baseline for the fifth consecutive month. This was lower than both the previous month’s 47.7 and the Dow Jones estimate of 47.3. CNBC reported that this figure was the lowest in three years, with sub-indices for prices and employment also below 50. U.S. February construction spending also declined 0.1% month-over-month on a seasonally adjusted basis, missing Wall Street expectations. Hugh Roberts, head of analysis at Quant Insight, described this as "overall weakness and ammunition for the bearish camp that a recession is approaching."

In the New York bond market, Treasury yields declined after confirming the weak economic data. The 10-year U.S. Treasury yield hovered around 3.41%. The 2-year yield, which is sensitive to monetary policy, fell to about 3.96%. The dollar index, which measures the value of the U.S. dollar against six major currencies, dropped more than 0.4% to around 102.

This week, several key indicators that could influence the Fed’s monetary policy decisions are scheduled, including U.S. March employment data, Purchasing Managers’ Index (PMI) releases, and the ADP payroll report. Wall Street estimates that the March nonfarm payrolls report, due on April 7, will show about 240,000 new jobs, down from 311,000 in the previous month, indicating a further slowdown. The unemployment rate is expected to remain steady at 3.6%.

Jeremy Siegel, professor at the Wharton School of the University of Pennsylvania, appeared on CNBC’s Squawk Box and said, "The Fed’s recent economic outlook implies negative growth through the end of the year," adding, "It is difficult for the stock market to be optimistic." Mislav Mateka, strategist at JP Morgan, also forecasted a bearish market for the remainder of the year and recommended reducing equity exposure.