Today's stock market closed in the red, down (-2.67%). The three main US benchmarks posted their worst days since April 1, which wiped away all of last week's gains.
Last month the Dow Jones (DJI) plummeted 38%, but bulls fought back and were able to regain some ground. Stocks had their best week in decades, but now investors are feeling the economic side effects from the coronavirus pandemic. The short-lived stock rally appears to have been a classic dead-cat bounce.
The monkey wrench
Coronavirus, unemployment, and now the monkey wrench that got thrown into the mix. Oil.
US crude oil prices plummeted from $18 a barrel to -$38 on Monday, which is the first time in history oil went below $0. It's a basic supply and demand equation that was brought on by the coronavirus pandemic. The world is essentially on standby, so there is little demand for oil. Oil producers have ran out of room to store oil and now there's an oil oversupply.
The oil industry is an intricate machine that requires help from other to produce. For example, steel companies make machines and machine parts for heavy equipment. Sellers of heavy equipment, such as Caterpillar (CAT), supplies earth moving machines. Also, don't forget about the banks that are financing the projects.
There's thousands of companies that profit directly, or indirectly from the oil industry. The domino effect has begun and ripples are being made in the stock market.
Now that there's a new crisis in the US, it may be easy to forget about the original gangster. Coronavirus.
Besides the fact that 22 million Americans have applied for unemployment (which Wall Street has turned a blind eye to), lets look at corporate earnings.
Corporate earnings have been nothing short of disappointing, which is a side effect of coronavirus.
Last week, JPMorgan Chase & Co. (JPM), Wells Fargo (WFCD), Morgan Stanley (MS), and Charles Schwab (SCHW) all reported quarterly earnings. Not surprisingly, all four banks reported a loss in earnings. In fact, they all missed quarterly projections too. After missing quarterlies and announcing loss in profits, their share prices declined and haven't fully recovered.
Companies are continuing to report quarterlies this week, but last week didn't set high expectations for investors.
It's still uncertain when states will lift their lockdowns. If lifted to soon, there's the threat of a second COVID-19 wave. If states continue to wait, people will continue to lose jobs, default on mortgages, and there will be a real estate crisis thrown into the mix.
The bears are here.
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DISCLAIMER: This article does not contain financial advice. Any and all market analysis is solely the authors opinion. Investors should do their own research before making any investment.