PLC said they were stepping back further from doing business with Russia, with Shell saying it will immediately halt all spot purchase of crude from the country and will phase out its other trading and business dealings.
A spokesman for BP said it won’t enter into new business with Russian entities or business involving Russian ports “unless essential for ensuring security of supply.”
The two made their moves ahead of what people familiar with the matter say is a plan by the Biden administration to ban Russian oil imports into the U.S. The Wall Street Journal reported an announcement on the issue is imminent. The administration’s deliberations about the ban have ramped up as lawmakers of both parties, including House Speaker
Nancy Pelosi,
called for action on the issue.The White House declined to comment.
Futures for Brent crude, the global oil benchmark, rose more than 5% early Tuesday. Oil prices for both measures were already up before the Journal report but rose further after.
Shell had previously said it would pull out of a number of joint ventures in the country. On Tuesday, it said it would also shut its service stations and aviation fuels and lubricants operations in Russia, and it won’t renew any Russian term contracts. It said it would find alternative supplies of oil as soon as possible, though it cautioned it could take weeks to fully make up the difference, leading to reduced production at some refineries.
Shell faced a backlash last week and over the weekend when it snapped up a cargo of Russian crude at a bargain price, after many other players had started to curtail their purchases, creating an informal embargo from some buyers in response to Russia’s invasion of Ukraine.
The company on Tuesday apologized for the purchase and said it would commit from its Russian oil purchases to humanitarian funds aimed at alleviating the crisis in Ukraine. Shell had previously said it would exit its joint ventures with Russian energy giant
Gazprom PJSC.
BP won’t charter Russian-owned or Russian-operated vessels where possible, the spokesman said. In cases where it already has, the company “will continue to monitor their safe passage and comply with all applicable sanctions and local restrictions.” The spokesman said the decisions were made in the middle of last week, calling the situation a “rapidly changing and complex area” that BP continues to review. Previously, BP said it would relinquish its nearly 20% stake in oil giant
Rosneft,
following pressure from the U.K. government.
Russia’s attack on Ukraine helped push the price of oil to over $100 a barrel for the first time since 2014. Here’s how rising oil costs could further boost inflation across the U.S. economy. Photo illustration: Todd Johnson
The U.S. and its allies left energy out of an array of economic sanctions imposed on Moscow in response to the invasion. Many refiners, though, went further, shunning Russian crude. Such self-sanctioning has taken a chunk out of global supplies, pushing prices for international benchmark Brent sharply higher. Traders say it is also causing a backup in Russia’s energy supply chain, prompting refiners to cut back production.
The Dow Jones Industrial Average dropped about 800 points, putting the blue-chip gauge into correction territory, as surging oil prices deepened concerns about economic growth.
The selloff in equities also put the Nasdaq Composite Index in a bear market, defined as a 20% decline from a recent high. The moves during the start of 2022 had already sent the S&P 500 into correction territory, defined as a decline of at least 10% from a recent high. The Dow industrials joined the other indexes in correction territory Monday as the climb in oil prices threatened to feed into higher inflation.
Investors are growing fearful that the consequences for financial markets of the war in Ukraine, now in its 12th day, could reach further than initially thought. Already the conflict has roiled commodity markets, increased tensions between Moscow and the West and led to Russia being unplugged from much of the global financial system.
“The market’s on increasingly shaky ground,” said
Hans Olsen,
chief investment officer at Fiduciary Trust. “When you combine the price shocks that we’re seeing in the energy complex on one hand and the galloping inflation that we’re dealing with on the other hand, that’s a really tough mix for an equity market to hold valuations where we are right now.”
The Dow industrials were recently down 2.4%, or about 797 points, following four consecutive weeks of losses. They are down at about 11% from their January high.
The S&P 500 dropped 2.95%, bringing its 2022 decline to almost 12%. The tech-heavy Nasdaq Composite lost 3.6% and is down 18% year-to-date and more than 20% from its high. The S&P 500 entered a correction on Feb. 22, while the Nasdaq Composite fell into correction on Jan. 19.
Monday’s losses were broad-based, with nine of the S&P 500’s 11 sectors down in recent trading. The energy group added to its gains for the year while the utilities segment also advanced. The consumer discretionary segment led the decliners, recently dropping more than 4%.
Attention focused on energy markets, where oil prices rose after Secretary of State
Antony Blinken
said Sunday that the U.S. and European partners are discussing a ban on imports of Russian oil.
Global benchmark Brent crude topped $130, the highest level since July 2008, before easing from its highs. Brent advanced 4.3% Monday to $123.21 a barrel, its highest settle value since April 2012.
Equity investors are worried that sky-high oil prices will fuel inflation and that the war in Ukraine and ensuing sanctions on Russia could hurt businesses based in the U.S.
“The rise in oil is destabilizing the market,” said
Jay Hatfield,
chief executive and portfolio manager at Infrastructure Capital Advisors. “The market is concerned about the war and its impact on U.S. growth and U.S. companies.”
Investors appear to be in classic flight-to-safety mode and stocks are suffering as a result, said
Kelvin Tay,
the Singapore-based regional chief investment officer for
UBS.
Very high oil prices will function as “a tax on the global economy, and therefore global growth will actually have to slow,” he said.
The top-performing stocks in the S&P 500 were energy companies that stand to benefit from rising oil prices. Shares of
Schlumberger NV
jumped 8.8%, while
Halliburton
shares advanced 6.7%.
Among the worst performers, by contrast, were a number of travel-related companies that could be hurt by higher fuel prices and the possibility that consumers could cut back on travel because of geopolitical tensions. United Airlines shares dropped 15%, and
Delta Air Lines
shares fell 13%.
Occidental Petroleum
shares fell 0.6% after activist investor
Carl Icahn
exited his position after years of campaigns.
Bed Bath & Beyond
rose 23% after billionaire investor
Ryan Cohen
disclosed a 9.8% stake in the retailer.
Conflicts like Russia’s invasion of Ukraine have historically sent stock prices lower and boosted the value of certain commodities. WSJ’s Dion Rabouin explains the investor psychology that is moving markets. Photo: Justin Lane/EPA-EFE/Shutterstock
Higher commodity prices and the resulting accelerated inflation are complicating the next moves of major central banks, which were largely set to begin tightening monetary policy before the war began.
The European Central Bank is meeting this week, and investors will be watching for changes to its growth outlook and policy. In the U.S., Federal Reserve Chairman
Jerome Powell
said last week that he would propose raising interest rates by one-quarter of a percentage point at the central bank’s meeting later this month.
“This toxic cocktail poses a huge problem for central banks. Do they tighten monetary policy and risk pushing the world into a recession even quicker or do they allow inflation to rip higher, which would do the same thing?” said
Michael Hewson,
chief markets analyst at
CMC Markets.
Inflation concerns are weighing on the bond market, he added.
The yield on the benchmark 10-year U.S. Treasury note rose to 1.748% Monday from 1.722% Friday, reversing direction after posting the biggest one-week decline since March 2020 last week. Yields rise when prices fall. Bonds typically perform well in times of market stress or slower economic growth, but their fixed cash flows lose value in periods of rapidly rising prices.
Other safe-haven assets rallied. Gold rose 1.5% to $1993.90 per troy ounce, its highest settle value since August 2020. The greenback strengthened, with the WSJ Dollar Index rising 0.6%. The U.S. dollar is seen as a haven asset because of its status as the world’s reserve currency.
The Russian ruble seesawed and traded during the day at a record low of more than 150 rubles to $1. Russia’s stock market is closed and will remain so until at least Tuesday, according to Russia’s central bank. It hasn’t traded normally since Feb. 25.
The war in Ukraine has raised questions about the global outlook for economic growth and inflation.
Photo:
Courtney Crow/Associated Press
Overseas, the pan-continental Stoxx Europe 600 fell 1.1% Monday. Surging oil and gas prices are spurring concerns that Europe, an energy importer dependent on Russia, could fall into recession.
Stock benchmarks in the Asia-Pacific region fell sharply, with South Korea’s Kospi Composite declining more than 2% and Japan’s Nikkei 225 shedding 2.9%, to close at its lowest since November 2020. The mainland Chinese CSI 300 and Hong Kong’s Hang Seng Index both fell more than 3%.
Write to Karen Langley at karen.langley@wsj.com, Clarence Leong at clarence.leong@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com
The S&P 500 was poised for further losses and bond yields and global stocks retreated on the possibility of a war in Europe, after weekend diplomacy between Western leaders and Russia failed to yield a breakthrough.
Futures for the S&P 500 slid 0.9% Monday. Contracts for the technology-focused Nasdaq-100 and the Dow Jones Industrial Average fell 1.1% and 0.7%, respectively. If the losses continue through the opening bell, they will compound a decline for stocks sparked Friday by U.S. warnings that Moscow could invade Ukraine at any moment.
Overseas stock markets also dropped, catching up with Wall Street’s late-week tumble. The Stoxx Europe 600 lost 3.4%, led lower by shares of banks and travel and leisure companies. Japan’s Nikkei 225 fell 2.2% and China’s Shanghai Composite Index fell 1%.
Oil prices edged down, after jumping in early trading on concern a war would curtail supplies of Russian crude to global markets that lack significant spare supplies. Brent, the benchmark in energy markets, fell 0.3% to $94.07 a barrel, holding near its highest level since 2014.
The U.S. believes Russian President Vladimir Putin could order an invasion of Ukraine at any time, even before the Feb. 20 end of the Beijing Olympics, national security adviser Jake Sullivan said Friday. Russia has denied it intends to invade its neighbor. Photo: Russian Defense Ministry/AP
Prices for natural gas—of which Russia is the single biggest exporter globally—rose on both sides of the Atlantic. In the U.S., gas prices rose 4.5% to $4.12 per million British thermal units. Prices in Europe, which depends on Russia for much of its gas, a chunk of it flowing through Ukraine, jumped 8.8%.
Investors reached for assets they perceive to be havens at times of uncertainty. The yield on benchmark 10-year Treasury notes fell to 1.924% from 1.951% Friday, having reached a two-year high of 2.028% Thursday. Yields and bond prices move in the opposite direction. Gold futures rose 0.8% to $1,857.40 a troy ounce.
Stocks have been buffeted this year by the prospect of an increase in interest rates by the Federal Reserve. The central bank is gearing up to raise borrowing costs to combat the highest rate of inflation in four decades, winding down the easy-money policies that have pushed riskier assets higher for much of the past two years.
The possibility of a ground war in Europe has loomed large as an additional source of uncertainty for investors. Moscow has denied intending to invade Ukraine, but Russia’s military buildup has quickened, with forces positioned on three sides of the country. They include some of Russia’s best-trained battalions and missiles that could strike targets throughout Ukraine.
Stocks have been buffeted this year by the prospect of higher interest rates.
Photo:
David L. Nemec/Associated Press
The U.S. and its allies are withdrawing diplomatic staff from Kyiv in a sign Western capitals see diplomatic options narrowing. Companies are also taking precautions. Dutch airline KLM has stopped flying in Ukrainian airspace. Shares of
Air France KLM,
the Paris-listed holding company, dropped 5%.
In recent weeks, investors had wagered that war would be averted, piling into the ruble and hryvnia currencies as well as Russian and Ukrainian government bonds. On Monday, those trades started to reverse.
Russia’s benchmark stock index, the Moex Russia, fell 3.1%. Ukraine’s hryvnia weakened 1.7% to trade at 28.55 a dollar. The yield on a dollar-denominated Russian government bond maturing in 2026 rose to 4.574% from 3.919% Friday, according to Tradeweb. A Ukrainian government bond maturing in 2033 traded at a yield of 11.286%, up from 10.222%.
Catching some investors off guard, the ruble strengthened 0.7% to trade at 76.93 a dollar. Timothy Ash, a strategist at BlueBay Asset Management, said the move suggested Russia’s central bank had intervened in foreign-exchange markets. “On the geopolitical risk, the ruble should be weaker,” he added.
Russia’s central bank has ample reserves of foreign currency with which to support the ruble. The bank didn’t immediately respond to a request for comment.
Investors say the standoff over Ukraine is difficult to trade because they have no particular insight into the possibility of an invasion and the nature and severity of the West’s response. If Moscow were to attack and the U.S. and its allies responded with sanctions, the hostilities could affect the world economy and markets in unpredictable ways.
One likely consequence, given Russia’s position as a commodities superpower, would be higher energy prices, which could keep up the pressure on central banks to raise interest rates. At least in the short term, stocks and bond yields would likely decline as investors sought safe assets, investors say.
“We have the inflation story and then we have the Russian story,” said Lars Skovgaard Andersen, senior investment strategist at Danske Bank Wealth Management. In the event of an invasion, “there will be some negative effect on markets, but I also think investors are incorporating this,” he added.
Airline stocks were hammered in Europe after reports that several were avoiding Ukraine’s airspace. Budget carrier Wizz Air dropped 9.2%, British Airways owner International Consolidated Airlines Group lost 6.1% and Deutsche Lufthansa fell 4.7%.
Among individual U.S. stocks, Splunk rose 8.2% in premarket trading after The Wall Street Journal reported that
Cisco Systems
had made a takeover offer worth more than $20 billion for the software maker. Blackstone slipped 2.6% ahead of the bell after the private-equity company agreed to buy Australian casino operator Crown Resorts for $6.3 billion.
London-listed energy company BP, which owns almost 20% of Russia’s state-backed Rosneft Oil and invests in several joint ventures in Russia, fell 2.3%.
The threat of a Russian invasion of Ukraine is shaking up a fragile global oil market, pushing prices closer to $100 a barrel as traders calculate that supplies will struggle to cushion the effect from any significant disruption in Russian fossil fuel exports.
Demand for oil has outpaced production growth as economies slowly rebound from the worst of the pandemic, leaving the market with a small buffer to mitigate an oil-supply shock. Russia is the world’s third-largest oil producer, and if a conflict in Ukraine leads to a substantial decrease in the flow of Russian barrels to market, it would be perilous for the tight balance between supply and demand.
Those dynamics have led traders in recent days to price in a sizable geopolitical risk premium, according to analysts. Crude oil prices, which haven’t topped $100 a barrel since 2014, jumped to an eight-year high on Ukraine concerns Friday.
Prices fell slightly in early trading Monday, with Brent crude, the global benchmark in energy markets, down 0.3% at $94.07 a barrel but still near its highest level since 2014.
“We are setting up for a period of turbulence,” said Jason Bordoff, founding director of Columbia University’s Center for Global Energy Policy. “The threat is more pronounced when energy markets are tight.”
Concerns about a potential Russian invasion are adding to what has been a volatile stretch for stocks amid concerns about higher inflation and rising bond yields. Russia also is a sizable exporter of other commodities, including wheat, which could impact prices in the event of military conflict, analysts and consultants say.
A sharp rise in prices for natural gas and oil could have ripple effects on the prices of gasoline.
Photo:
Justin Sullivan/Getty Images
For now, analysts say a major disruption appears unlikely, as the Biden administration hasn’t signaled that retaliatory measures will include sanctions against Russia’s energy industry. Russia, in turn, relies heavily on revenue from its fossil-fuel exports, making it unlikely to shut the spigot in its own act of retaliation, say analysts.
But the White House has said no punishment is off the table, and war can lead to unpredictable outcomes. The U.S. warned Friday that a Russian military invasion could happen at any moment, with tens of thousands of casualties. Russia, which has massed some 130,000 troops along Ukraine’s borders, denies it intends to invade its neighbor.
The stakes for the rest of the world are high. A sharp rise in prices for natural gas and oil could have ripple effects on the prices of gasoline and many consumer goods, potentially driving inflation higher.
In a press conference, President Biden said the U.S. would stop Nord Stream 2 – a pipeline to transport natural gas from Russia to Germany – if Moscow invades Ukraine. The German chancellor expressed support but didn’t explicitly say the project would be halted. Photo: Anna Moneymaker/Getty Images
Russia plays an outsize role in global commodity markets. It exports about 5 million barrels a day of crude, roughly 12% of global trade, and around 2.5 million barrels a day of petroleum products, about 10% of global trade, according to investment bank Cowen. About 60% of Russia’s oil exports go to Europe, and another 30% go to China.
The tension over Ukraine comes as the Organization of the Petroleum Exporting Countries and its allies including Russia, known collectively as OPEC+, pledged to carefully put more barrels back on the market as demand rebounds, but has fallen short of its oil-production targets.
Saudi Arabia and the United Arab Emirates are the only OPEC+ producers that appear to have significant spare production capacity.
Photo:
Amr Nabil/Associated Press
The group last year agreed to lift output by 400,000 barrels a day each month. But so far it is more than 1 million barrels a day shy of its target, said
Andy Lipow,
an oil analyst and president of Lipow Oil Associates in Houston.
“The market now questions the ability of OPEC+ to restore production to the pre-pandemic levels,” Mr. Lipow said.
Saudi Arabia and the United Arab Emirates are the only two OPEC+ producers that appear to have significant amounts of spare production capacity, Mr. Lipow added.
IHS Markit
expects global oil demand to grow by between 3.8 million barrels and 4 million barrels a day from January to December, with another leg of strong growth expected after the Omicron variant of coronavirus subsides.
Meanwhile, though American frackers are dispatching more drilling rigs in response to high prices, any substantial increase in their oil production is still months away. Shale companies have pledged to limit production growth and return more cash to shareholders, potentially limiting their ability to fill any supply gap. Energy consulting firm Wood Mackenzie last week projected oil production from the contiguous U.S. would increase by 240,000 barrels a day by the end of 2022.
For now, the most likely energy disruption would be to Russia’s exports of natural gas, say analysts. Russia exports around 23 billion cubic feet of gas a day, about 25% of global trade, and 85% of that gas goes to Europe, according to Cowen. In particular, Russia’s flow of natural gas to Europe through a pipeline network in Ukraine could be disrupted during a conflict. The network transports about 4 billion cubic feet a day at full capacity to Europe but is currently flowing at about 50%, according to Cowen.
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Russian natural gas flows to Europe have been running lower than usual in recent months. If Russia further reduces natural gas flows to Europe or U.S. sanctions limit them, European companies would struggle to replace the supplies. European gas prices have recently reached records and, as a result, the market already is directing much of the spare supply of liquefied natural gas to Europe. Most operational LNG facilities in the world’s largest exporters—the U.S., Qatar and Australia—are running at full capacity, and there is little new supply to add.
Russia would pay a heavy price if its sale of fossil-fuel exports is reduced. Approximately half of Russia’s federal budget is tied to oil and gas, according to investment bank Raymond James. President Biden said the Russian-built Nord Stream 2 natural-gas pipeline to Germany would be suspended if Russia invades Ukraine, which alone would result in an $11 billion write-down for state-owned energy company
Gazprom,
the bank said.
A reduction of natural gas also could have ripple effects in oil markets as stiff competition and higher prices for gas could force some power plants and others that run on gas to use oil instead, ultimately leading to higher oil prices, say analysts.
Even if the U.S. doesn’t target Russia’s energy industry, other sanctions could still have knock-on effects on commodity markets. Sanctions on financial institutions, for example, may make funding energy operations more difficult, said
Matthew Reed,
an analyst at Washington-based consulting firm Foreign Reports.
Mr. Reed said some are concerned that a second round of sanctions, if the first fails to deter Russia, would directly target energy supplies.
“The real risk here isn’t necessarily the first round of sanctions,” Mr. Reed said. “It’s the second round that comes after, if everyone realizes the first was a waste of time.”
Write to Christopher M. Matthews at christopher.matthews@wsj.com and Collin Eaton at collin.eaton@wsj.com
had its most profitable year since 2014, reporting Friday that it earned $15.6 billion in net income in 2021, as commodity prices surged on the back of a global economic recovery.
The U.S. oil giant’s annual earnings were a dramatic turnaround from 2020, when Chevron lost $5.5 billion after the global pandemic routed demand for oil and gas. It reported a fourth-quarter profit of $5.1 billion Friday, up from a $665 million loss during the same period last year. Chevron also said it generated $21.1 billion in free cash flow in 2021, its most ever.
Chevron’s stock price reached its highest level ever Thursday, closing at more than $135 a share, as investors reacted to Chevron’s announcement that it would raise its quarterly dividend by 6%. But the company’s shares fell more than 4% Friday following the release of its fourth-quarter earnings, which were lower than analysts had expected.
Surging commodity prices have left investors wondering whether oil-and-gas companies will follow their historical impulse to increase drilling in pursuit of higher profits. Chevron is the first of the largest Western oil companies to report earnings, and analysts will look for tea leaves from Chevron’s management about whether the price signal has changed its calculus.
Chevron Chief Executive
Mike Wirth
said demand for gasoline is above pre-pandemic levels and that he expects further recovery in fossil markets in 2022. Despite that, he said Chevron will stick to disciplined spending.
“I don’t think we’re going to be tempted by the price of the day,” Mr. Wirth said on a call with analysts Friday.
Following years of dismal returns from oil-and-gas companies, investors have pressured producers to moderate growth and return more cash to shareholders. Chevron and peers have responded by changing how they allocate cash, leading to a jump in their share prices and declines in the cost of capital, according to
Rob Thummel,
a senior portfolio manager at TortoiseEcofin.
While that is good for investors in the company, there are mounting concerns that there isn’t enough investment in new fossil-fuel supply to meet growing demand.
“Producers and management teams will continue to deliver on what the market is asking them, which is to return capital to shareholders, ultimately making it harder to keep up with global demand for oil and gas,” said Mr. Thummel.
In 2012, the Netherlands experienced a 3.6 magnitude earthquake. It was caused by one of the world’s largest gas fields, known as Groningen, and it set off a chain of events that’s contributing to today’s sky-high energy prices. WSJ’s Shelby Holliday explains. Illustration: Sebastian Vega
U.S. oil prices reached their highest levels since 2014 in January and were trading at around $87 per barrel Thursday. More analysts are predicting that oil prices will top $100 per barrel in 2022, as global economies continue to recover and investment in oil and gas production remains relatively restrained.
Chevron has said it is sticking to a relatively modest budget and will return increasing amounts of cash to shareholders. Chevron’s dividend increase Thursday marked the 35th consecutive year the company has raised the payout. Chevron has also said it would buy back as much as $5 billion of its stock after buying back $1.4 billion in 2021.
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Late Thursday, a federal judge invalidated a U.S. oil and gas lease sale of 80 million acres in the Gulf of Mexico, saying the Department of Interior hadn’t adequately considered climate change impacts in its environmental analysis. Chevron was among the companies that had bid for tracts in the sale. Mr. Wirth called the decision disappointing on Friday.
Chevron said in December it would increase capital expenditures in 2022 to $15 billion, a 20% increase from the previous year but still well below pre-pandemic levels. Mr. Breber said the company will maintain that budget. Chevron has said it would spend between $15 billion and $17 billion through 2025 compared with previous plans to spend $19 billion to $22 billion a year before the pandemic.
Despite the lower spending levels, Chevron said it set a record for oil and gas production in 2021, producing 3.1 million barrels a day, a modest increase from last year’s levels. The company’s oil-and-gas production unit earned $7.3 billion in 2021, compared with a loss of $1.6 billion in 2020.
Chevron Chief Financial Officer
Pierre Breber
said the company can grow production despite its more disciplined spending because of structural cost savings Chevron implemented during the pandemic. Chevron has to grow to sustain the dividend, he said.
“We’re going to build back activity as the market recovers,” Mr. Breber said.
Phil Gresh,
an analyst at
JPMorgan Chase
& Co., said in a note to investors Friday that Chevron’s guidance that 2022 oil and gas production would be flat to slightly down was lower than expected. Mr. Breber said Chevron’s 2022 production would grow, excluding lost volumes from expiring contracts in Asia.
Write to Christopher M. Matthews at christopher.matthews@wsj.com
U.S. stock indexes were mixed Tuesday, a day after a record close for the S&P 500 amid lower liquidity in the last days of the year.
The S&P 500 swung between small gains and losses, touching a new intraday high in morning trading, after the broad-market index rallied 1.4% on Monday. It finished down 4.84 points, or 0.1%, to 4786.35. The Dow Jones Industrial Average rose 95.83 points, or 0.3%, to 36398.21. The Nasdaq Composite fell 89.5 points, or 0.6%, to 15781.72.
Stocks have been buffeted by the spread of the Omicron variant in recent weeks as governments around the world have imposed restrictions to try to curb coronavirus infections. But some recent studies have suggested the variant might result in milder illness with lower risk of hospitalization.
The Centers for Disease Control and Prevention reduced the recommended isolation period for some people who test positive to try to minimize disruptions. Still, many economists have lowered their forecasts for economic growth in the first quarter of next year.
“What is emanating from markets is the faith that Omicron won’t be able to disrupt the economic recovery,” said
Antonio Cavarero,
head of investments at Generali Insurance Asset Management. “There is no visible risk reduction.” That is partly due to lower liquidity from fewer people working around the holidays, he said.
Stock investors are keeping eyes on a phenomenon known as the “Santa Claus rally.” Indexes such as the S&P 500 have a tendency to rise in the last five days of the year and the first two days of the new year. Such a rally takes place at the end of about four of every five years, according to “Stock Trader’s Almanac.”
“It happens because people start positioning. People are reading everyone’s 2022 estimates and planning for next year,” said
Jeffrey Meyers,
a consultant to hedge funds and family offices at Market Securities.
Governments and policy advisers are showing signs of taking a lighter touch with policies regarding the rapidly spreading Omicron variant, reducing quarantine times and in some instances forgoing social-distancing restrictions as they try to keep economies moving. Vaccine makers gave up gains from earlier in the session, with
Novavax
declining 1.2% and
Moderna
down 2.2%.
The news has helped shares of travel and energy companies, with
United Airlines
up 1.6% and
Valero Energy
up 1.9%.
Cutting quarantine times is bullish for investors and prompting market participants to look beyond the Omicron surge, said
David Kotok,
chief investment officer at Cumberland Advisors. But it also risks allowing the Covid-19 virus to mutate, spread and disrupt economies, he added. He is overweight healthcare stocks.
“This ain’t over, and markets want to celebrate it being over. But the virus doesn’t care about what markets want,” Mr. Kotok said.
Oil prices ticked up, with global benchmark Brent crude climbing 0.4% to $78.94 a barrel.
The yield on the benchmark 10-year Treasury note was unchanged at 1.480%.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, showed U.S. home-price growth slowed in October. Shares of home builders edged higher during Tuesday’s session, with
D.R. Horton
advancing 0.7% and
Taylor Morrison
rising 0.8%.
U.S. companies will be entering 2022 at a very high level of corporate earnings, said Mr. Kotok. That will require companies to produce robust earnings growth next year, in the face of less fiscal and monetary policy stimulus.
“I’m a terrified bull,” he said.
Stocks have been buffeted by the spread of the Omicron variant in recent weeks.
Photo:
John Minchillo/Associated Press
Bitcoin slipped around 6.3% from its level at 5 p.m. ET on Monday, trading around $47,794. The cryptocurrency has oscillated around the $50,000 mark for the past five days.
Overseas, the pan-continental Stoxx Europe 600 added 0.6%.
The Turkish lira rose 1.3% to 11.8 to the dollar. The currency had strengthened after the government announced a new economic plan last week. President
Recep Tayyip Erdogan
“may have bought Turkey some time but it’s still not a great story,” Mr. Meyers said. Speculative investors likely closed out short positions ahead of the long holiday weekend and may now be putting them back on, weighing on the lira, he said.
In Asia, most major benchmarks rose. The Shanghai Composite Index climbed 0.4% and Hong Kong’s Hang Seng Index added 0.2%. Japan’s Nikkei 225 advanced 1.4%, led by gains in technology stocks.
Shares of
China Evergrande Group
pared early gains bust still rose 3.8%. The heavily indebted real-estate developer said construction work had resumed at more than 90% of its stalled residential projects. It also said it was delivering apartments faster to home buyers.
Write to Sebastian Pellejero at sebastian.pellejero@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com
U.S. stocks rose in early trading Monday as the few investors staying on Wall Street were looking to capitalize during a traditionally bullish week.
The S&P 500 rose 0.5% after the index hit its 68th record close of 2021 Thursday. U.S. markets were closed Friday for the holiday. The tech-focused Nasdaq Composite Index jumped 0.6%, and the Dow Jones Industrial Average added 0.3%.
The last five trading days of the year and the first two trading days of the new year comprise the “Santa Claus Rally” in trading lore, as detailed in the Stock Trader’s Almanac. It’s not a big rally, on average adding about 1.3%, but it’s consistent, showing up about 80% of the time.
This year could be different, though. Investors are braced for higher volatility over the holiday season. Concerns over the rapid spread of the Omicron variant of Covid-19 and the economic impact of measures countries may take to stem its spread have weighed on markets in recent weeks. Some investors expect Omicron will be mitigated by vaccines and the rollout of booster shots in some nations.
A trader at the NYSE on the last day of trading before Christmas.
Photo:
ANDREW KELLY/REUTERS
“Everything seems to be serious but manageable. Anything that changes that, this could probably make a big impact,” said
Luca Paolini,
chief strategist at Pictet Asset Management.
Market moves can be amplified during the holiday season due to a lack of liquidity, or how readily buyers and sellers can find each other. With many traders off, prices people are willing to buy and sell at may be higher or lower because there are fewer counterparties.
“We are in kind of this Christmas trading range, but low liquidity makes any potential shock bigger,” Mr. Paolini added.
Shares of airline companies moved lower. Flight cancellations marred Christmas weekend for many travelers, as Covid-19 left carriers short-staffed to operate busy schedules over the holiday.
United Airlines Holdings
declined 2.1% and
American Airlines Group
shed 2.4%.
GoDaddy shares added 6.2% after The Wall Street Journal reported that activist investor Starboard Value has a sizable stake in the domain registrar and plans to push it to boost its performance.
In currencies, the Turkish lira fell 4.8% against the dollar. The lira, one of this year’s worst-performing emerging market currencies, recouped some losses last week after the nation’s president announced a rescue plan to encourage Turks to put their money back into the lira. Foreign investors are waiting to see if the plan marks a larger reversal in its weakness or if broader concerns over high inflation cause it to depreciate again.
In bond markets, the yield on the benchmark 10-year Treasury note ticked down to 1.483% from 1.492% Thursday. Yields and prices move inversely.
Overseas, the pan-continental Stoxx Europe 600 rose 0.5%. Markets in the U.K. were closed.
In Asia, China’s Shanghai Composite closed almost 0.1% lower. South Korea’s Kospi and Japan’s Nikkei 225 each declined 0.4%. Markets in Hong Kong and Australia were closed.
The Omicron variant caused more than 70% of new coronavirus cases in the U.S. registered the week ending Dec. 18, according to the Centers for Disease Control and Prevention. The surge comes as the holidays approach and some people reconsider travel plans. Photo: Jeenah Moon/Bloomberg
—Paul Vigna contributed to this article. Write to Caitlin Ostroff at caitlin.ostroff@wsj.com
Institutional Investor hall of famer Rich Bernstein is a market bull whose playbook excludes some of Wall Street’s most popular groups.
He blames a risky see-saw dynamic playing out in the marketplace.
“On one side, we have all that I would call the bubble assets: tech, innovation disruption, cryptocurrencies,” the Richard Bernstein Advisors CEO and CIO told CNBC’s “Trading Nation” on Friday. “On the other side of this see-saw, you have literally everything else in the world. I think if you’re looking at 2022 into 2023, you want to be in the everything else in the world side of that see-saw.”
Bernstein believes a scarcity of capital will spell opportunities.
“That’s where your returns are higher,” he said.
His number one pick is energy, a group he listed as a top play coming into 2021. Earlier this year, Bernstein called oil the most ignored bull market. And now, he believes it could be the growth group of 2022.
The Energy Select Sector SPDR Fund, which tracks the group, is already up 51% so far this year.
In a special note to CNBC, Bernstein wrote “The last time the FCF [free cash flow] yield for the energy sector was this high relative to either the market or the Tech sector was around the Tech Bubble, and energy outperformed for a decade. The sector’s dividend yield is >3X the S&P 500’s dividend yield.”
Bernstein, who ran strategy at Merrill Lynch, warns today’s “bubble assets” could dramatically hurt investors just like the early 2000s.
“Valuations are very high and what you have to remember is the valuation is more important than the story,” he said.
He acknowledges stories told about the internet and cellular communications during the 2000 tech bubble became a reality over the next decade. But it took years to collect the profits.
“If you invested in the Nasdaq 100, which were the real companies at the time, it took you 14 years to break even,” said Bernstein. “Something tells me that the people today are not paying attention to valuations, but also aren’t thinking it’s going to take them 14 years to break even.”
Crypto as a ‘monster’ bubble
Bernstein also sees cryptocurrency as a major problem. Last June on “Trading Nation,” he warned the rush to own bitcoin and other cryptocurrencies was becoming dangerously parabolic.
“Cryptos are the biggest financial bubble ever in history,” said Bernstein. “This is just a monster one.”
As of Friday’s market close, bitcoin is off about 30% over the past month. It’s still up 63% so far this year.
Bernstein speculates bitcoin could fall as much as 90% just like some tech stocks during the 2000 bubble.
“I think one wants to wait to look at the true fundamentals, and look at the valuations before deciding that this is all over,” Bernstein said.
U.S. stocks edged down as investors assessed weekly jobless claims data and the latest global restrictions to limit the spread of the Omicron variant.
The S&P 500 retreated 0.4% at the market open after closing up 0.3% Wednesday. The Dow Jones Industrial Average and the Nasdaq Composite also ticked down 0.4%.
Popular meme stock
GameStop
declined 1.2% after the company posted earnings that showed a widening loss.
Amazon.com
fell 0.1% after the Italian government fined it $1.3 billion for alleged abuse of market dominance. The European Union is also investigating the e-commerce giant.
Stocks have swung in recent weeks, buffeted by conflicting headlines on the Omicron coronavirus variant and mixed signals on the health of the economy. Investors are still awaiting further data on the strain’s severity and vaccine efficacy. Some pharmaceutical companies including
Pfizer
and
GlaxoSmithKline
have said this week that their shot and antibody treatment appear to work in early-stage studies.
The CDC said the first known U.S. case of the Omicron variant was identified in California.
European governments have moved to tighten restrictions, spurring concerns about setbacks to the economic recovery. U.K. Prime Minister Boris Johnson outlined a new work-from-home mandate and mask guidelines on Wednesday evening. A study released by a Japanese scientist said the variant was four times more transmissible than the Delta strain.
“There’s still a lot we don’t know, we’re waiting for details to emerge,” said Arun Sai, a multiasset strategist at Pictet Asset Management. On restrictions, “as long as it’s temporary, it doesn’t completely derail the recovery. We now know the playbook. We’re talking about a one- or two-quarter postponement of a recovery in services, that’s the critical element that’s at risk here.”
In a sign the labor market is improving faster than expected, weekly jobless claims came in at 184,000, the lowest level since 1969, according to the Labor Department. Claims declined from the previous week and were below economists’ forecasts.
The yield on the benchmark 10-year Treasury note edged down to 1.485% Thursday from 1.508% Wednesday.
Cloud-computing firm
Oracle,
network company
Broadcom
and wholesaler
Costco
are set to report results after markets close. “Earnings have been strong overall, it’s a really positive underlying driver for equity markets,” said
Kiran Ganesh,
a multiasset strategist at UBS Global Wealth Management.
In Europe, the pan-continental Stoxx Europe 600 ticked down 0.2%.
UniCredit
shares climbed more than 10% after the bank said it planned to return over $18 billion to shareholders by 2024.
Deutsche Bank
shares declined 2.7% after The Wall Street Journal reported that the Justice Department had told the German lender that it might have violated a criminal settlement.
Investors are awaiting further data on Omicron’s severity and vaccine efficacy.
Photo:
BRENDAN MCDERMID/REUTERS
In Asia, the Shanghai Composite Index advanced 1%, while Hong Kong’s Hang Seng Index climbed 1.1%. China’s producer-price index showed a 12.9% increase in November from a year earlier, a decline from the previous month but still more than economists expected. Consumer prices also rose.
Shares of
China Evergrande Group
fell more than 7%. China’s top central banker said Thursday that financial stress at the property developer and its peers should be dealt with according to market principles.
Global oil benchmark Brent crude fell 1.2% to $74.96 a barrel, reversing direction after a five-day rally. It has risen nearly 8% this week, lifted by early indications that the Omicron variant may not weigh on energy demand as much as previously feared.
Bitcoin reversed direction after four days of gains, slipping 2.8% from its level at 5 p.m. Wednesday. It traded below $50,000, a 28% drop from its record high set in November.
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com
Soaring natural-gas and coal prices are pressuring power-generation companies and manufacturers to switch to using oil, a trend that could add half a million barrels a day to global demand, the International Energy Agency said Thursday.
In its monthly market report, the IEA increased its global oil-demand forecasts for this year and the next by 170,000 and 210,000 barrels a day, respectively, but added that the cumulative effect of the energy crisis could be as large as 500,000 barrels a day from September through next year’s first quarter.
That increase means that the IEA, which acts as the energy watchdog for the wealthy nations of the Organization for Economic Cooperation and Development, expects the world’s thirst for crude next year to exceed pre-pandemic levels.
Oil prices added to early gains on Thursday following the release of the IEA’s report, with Brent crude rising 1.2% to $84.16 a barrel in early trading. U.S. crude futures climbed 1.1% to $81.35 a barrel, on course to close at fresh seven-year highs. Both benchmarks have increased more than 60% this year, accelerating in recent months due in part to tight supply elsewhere in the energy market.
“An acute shortage of natural gas, [liquefied natural gas] and coal supplies stemming from the gathering global economic recovery has sparked a precipitous run-up in prices for energy supplies and is triggering a massive switch to oil products and direct crude use for power generation,” the Paris-based organization said in its report, adding that power-generation plants, fertilizer producers, manufacturing operations and refineries are all affected.
The shortage of relatively low-carbon but expensive natural gas—analysts say the commodity is two to three times more expensive than the equivalent amount of oil—and the trend of switching to more emissions-intensive fuels such as crude products comes weeks before leaders from around the world descend on Glasgow for United Nations-led climate negotiations.
Analysts say the IEA’s forecast of an extra 500,000 barrels a day in demand from the energy crisis may be conservative.
“We have never had a situation like this where oil is extremely cheap [versus gas] so we just don’t have empirical evidence” for how much oil demand may increase, said Bjarne Schieldrop, chief commodities analyst at SEB Markets. “It could very well be more than a million barrels,” he added.
Relatively weak natural-gas inventories for the time of year and low wind levels in Europe have coincided with the post-pandemic economic recovery, coal shortages in China and the possibility of a cold Northern Hemisphere winter to send fossil-fuel prices soaring. Benchmark European gas prices have leapt 184% in the past three months.
IEA Executive Director
Fatih Birol
said Wednesday that extreme weather events—such as Hurricane Ida in the Gulf of Mexico, droughts stymieing hydroelectric power in China and Brazil, and widespread flooding—have also contributed to the energy crunch. He added that supply choke points, including pandemic-delayed maintenance work, meant that natural-gas outages are currently 40% higher than average.
As a result, analysts have already observed a rise in the trend known as gas-to-oil switching, whereby power plants that run on oil are fired up or ones that can be converted to run on crude products are being switched over.
Goldman Sachs
cited this in raising its oil-price forecasts late last month, while energy consulting firm Rystad Energy said it expects the Asian power sector to use 400,000 more barrels a day of oil than it previously did in the next six months.
In its report, the IEA observed a similar trend, citing provisional data showing “unseasonably high demand for fuel oil, crude and middle distillates for power plants” across China, Japan, Germany, France and Brazil.
Even so, supply from oil-producing nations remains constrained. The IEA trimmed its supply forecasts for this year and next for countries outside of the Organization of the Petroleum Exporting Countries and its allies, citing outages from Hurricane Ida and maintenance-related outages in Canada and Norway.
Meanwhile, despite increased production from OPEC+, the IEA said the alliance would produce 700,000 barrels a day fewer than the world’s appetite for its crude in the fourth quarter of 2021, but added that if the producer group continues to unwind its production curbs then it may shift back to supplying more than needed in 2022.
Long-term reports in recent weeks from OPEC and the IEA have shone a spotlight on the cartel’s influence over the global energy system. While the IEA said on Wednesday that clean-energy spending must triple to avoid further power-market turbulence, OPEC’s report said that developing-world population growth and wealthier nations’ aversion to fossil fuels leaves the cartel well-positioned to profit from selling oil for decades to come.
Write to David Hodari at David.Hodari@dowjones.com
