TheChek News Flow

There was oil today and then there was everything else.  That doesn't mean, though, that "everything else" wasn't interesting.  It's just that the movement in oil prices was so spectacular that it garnered top billing throughout the session.

To the latter point, crude prices were down 3.6% in early trading to $43.60 per barrel.  They would settle the day up 8.8% at $49.20 per barrel, representing a huge 13% swing from low to settlement price.

There were several factors contributing to the sharp reversal:

• The Energy Information Administration released a report showing monthly production in the U.S. in June was estimated to be 9.3 million barrels per day or roughly 100,000 barrels per day less than May and 300,000 barrels per day less than April
• OPEC published a bulletin in which it said it stands ready to talk to other producers about the low oil prices; and
• Big short-covering activity on the last day of the month (with Monday's move, oil prices have surged 27% over the last three sessions)

The reversal in oil prices triggered a reversal in the S&P 500 energy sector, which was down 2.6% shortly after the start of trading.  It would end the day up 1.1%, which left it as the best-performing sector in the S&P 500, as well as the only sector to finish the day in positive territory.

By and large, the stock market was stymied by selling efforts on Monday that were rooted in the following factors:

• An awareness that Fed Vice Chairman Fischer suggested in a speech over the weekend that a rate hike at the September Federal Open Market Committee meeting is still a possibility
  • Mr. Fischer indicated his belief that inflation should move higher as the effects of falling oil prices and the stronger dollar dissipate  
• A sense the market was due for a pullback after rallying 6.5% from the low it hit last Monday
• Last Friday's low in the S&P 500 (1975.19) being taken out in early action and an inability to take out last Friday's closing level (1988.87) on a subsequent rebound try; and
• A general lack of convincing sector leadership

The Chicago Purchasing Managers Index (PMI) for August was the only economic release on today's docket.  It checked in weaker than expected at 54.4 (consensus 54.7), which was down slightly from 54.7 in July.  It didn't carry much weight in moving the market since participants were keyed in more on Tuesday's release of the national ISM Index and a battery of PMI readings out of China, Japan, and the eurozone.

Notably, the Treasury market coughed up early gains even as the stock market struggled to gain upside traction.  Its turnaround was precipitated by the spike in oil prices, which played into Mr. Fischer's view that inflation should move higher.  The yield on the 10-yr note, which dipped to 2.14%, eventually pushed back up to 2.21%; meanwhile, the yield on the 2-yr Treasury note, which stood at 0.72%, bumped up to 0.74%.

The U.S. Dollar Index, however, was a bit weaker, falling 0.3% to 95.87 as both the euro and the yen gained ground against the greenback.

The majority of Dow components ended the day lower, led by Boeing (BA 130.68, -2.56, -1.9%), which was the biggest price loser.  Conversely, Goldman Sachs (GS 188.60, +0.85, +0.6%) was the biggest price gainer and helped the Dow cut an early 199-point loss.  

Boeing's weakness weighed on the industrials sector (-0.9%), but it was the health care sector (-1.9%) that was the weakest area, pressured by losses in the medical equipment and major pharmaceutical stocks.  Separately, the biotech stocks also succumbed to selling efforts, evidenced by the 3.3% decline in the iShares Nasdaq Biotechnology ETF (IBB 341.80, -11.48).

Volume was again relatively heavy with 1.08 billion shares changing hands at the NYSE.

For the month of August, the Dow, Nasdaq, S&P 500, and Russell 2000 declined 6.6%, 6.9%, 6.3%, and 6.3%, respectively.