US stocks closed sharply lower on Monday, especially small-caps, as energy stocks dragged tickers lower despite renewed optimism OPEC will thrash out a supply-cutting deal for oil on Wednesday.
The market bellwether S&P 500 closed down 0.5% at 2201, and 12 points off Friday’s record high close. Monday was a disappointment following the rise of all major tickers to record highs on Friday.
The S&P 500 Energy sector, down 1.3% on Monday, and S&P 500 Financials, down 1.4%, were the two culprits taking down tickers. Banks are anxious about this week’s ECB bank stress test results as well as next week’s constitutional vote in Italy which could determine the security of banks in the single currency bloc’s third-biggest economy.
Meanwhile, oil prices, which sagged initially on fears OPEC will be unable to reach agreement to end two-year depressed oil prices this week in Vienna, reversed on Monday as renewed optimism accompanied an intervention by Russian President Valdimir Putin to ask Iran to fall into line with OPEC’s thinking. The WTI was up 1.8% at $46.90.
In terms of individual stocks, H&R Block (NYSE:HRB) led the losses on the S&P 500 from the start of the session, with a 4.5% decline to $22.91.
Meanwhile, the S&P Midcap 400 closed down 0.7% at 1628 and led by oil group Sm Energy Company (NYSE:SM), down 7% to $33.10 and another top decliner was Denbury Resources (NYSE:DNR), down 5.4% to $2.98.
But the biggest losses were among small stocks. The S&P Smallcap 600 was down 1.2% at 815 – one of its sharpest percentage declines this year. It was led lower throughout the session by Adeptus Health Inc (NYSE:ADPT), down 11.3% to $8.88.
The wider small-cap Russell 2000 came off relatively lightly with a 0.3% decline to 1342 and led by oil group California Resources Corporation (NYSE:CRC), down 14.1% to $13.05.
Across the northern border, Toronto’s TSX Composite closed down 0.4% at 15,015.
Early trading
US shares opened off their record highs on Monday as last week’s hopes for an OPEC oil supply cut began to wobble badly and Black Friday failed to bring up the retail sector last week as much as had been hoped.
Even buoyant regional manufacturing news failed to lift tickers or add impetus to President-elect Donald Trump’s mission to restore old economy. The Texas factory sector in November expanded for the first time since 2014, in the latest sign of US economic activity picking up steam.
The S&P 500 market bellwether was down 0.3% at 2207, off its record of 2213 seen on Friday. Other tickers that had raced to records, which included the Dow, Nasdaq and the smaller cap indices, were also on the slide.
The S&P 500 was led lower by H&R Block (NYSE:HRB) down 6% to $22.55.
Investors chose not to put a lid on losses in the S&P Midcap 400, down 0.5% at 1631, as leader was food storage firm Tupperware Corp (NYSE:TUP), down 5.9% at $55.79.
Meanwhile, the top gainer in the midcap ticker was Time Inc (NYSE:TIME) whose shares rocketed by nearly 16.3% to 16.05 after reports that the publishing company that owns brands such as Sports Illustrated, People magazine and Time, has rejected an unsolicited bid backed by Len Blavatnik, the billionaire owner of Warner Music.
The offer, which was first reported by the New York Post, values Time Inc at $18 a share. It comes as Time and other publishing companies grapple with steep downturn in print advertising revenue.
The S&P Smallcap 600 was down 0.8% at 818 and led by Adeptus Health Inc (NYSE:ADPT) down 8.1% at $9.20 as the company faced an investors’ class lawsuit.
Soiling any prospects of upside was growing jitters about whether OPEC can seal a deal to cut crude output this week.
Investors have ratcheted up expectations for volatility in the oil market to the highest level in more than eight months amid growing uncertainty over whether Opec members will forge an agreement at its meeting this week to curb output.
The CBOE’s crude oil ETF volatility index has surged by 21 points since late October to 53.5 – its highest level since March.
Meanwhile, the US oil benchmark WTI was actually higher after a shaky start, up 2.2% to $47.08.
Pre-Open
After Black Friday … hangover Monday, as indices pull back from record highs, not helped by the sliding oil price.
Spread betting quotes suggest the S&P 500 index will open the batting at around 2206.5, down from 2,213 at Friday’s close. The more narrowly-based Dow Jones, which like the S&P closed at a new high on Friday, is tipped to open at 19,113, down 39 points.
The meeting of the oil producers’ cartel Opec is due to start this week and, not for the first time, hopes for an agreement on an output freeze are fading.
“Anxiety has taken over as the meeting approaches with fears no agreement will be reached,” noted Russ Mould, the investment director at London-based AJ Bell.
“OPEC’s record at reaching deals is mixed and its record at sticking to them is even worse so it may be unwise to place too much faith in the latest round of talks; that said, most member states would welcome higher oil prices, either to help balance their budgets or, in the case of Saudi Arabia, fire demand for the projected stock market flotation of Aramco,” Mould noted.
Chris Beauchamp at spread betting outfit IG Index was also among the Opec cynics.
“It’s hard to feel sorry for OPEC, since they always seem to be the authors of their own misery. Having studiously managed, against all expectations, to get their ducks in a row and agree to some outwardly-impressive production freezes, they have now apparently blown apart this tenuous consensus. Rising oil prices thanks to the freeze have convinced some that the bad times are over, and that now they can go back to the good old days of arguing over market share. If they fail to come up with a new deal this week, OPEC will have, once again, snatched defeat from the jaws of victory,” Beauchamp said.
The price of West Texas Intermediate crude in the futures market slipped to US$45.81 a barrel, down 25 cents on the day.
Away from the oil markets, focus will again be on retail, as commentators wait to see whether “Cyber Monday”, the retail trade’s attempt to gull online shoppers to spend even more money, proves as successful as “Black Friday”, the bricks-and-mortar retail trade’s counterpart, was last week.