U.S. Stocks Climb After Two Days of Oil-Driven Turbulence

By Avantika Chilkoti and Joanne Chiu 

U.S. stocks rallied Wednesday, clawing back some of this week's losses, as oil markets calmed and investors looked to corporate earnings reports to gauge the health of U.S. businesses during the coronavirus pandemic.

The Dow Jones Industrial Average added 370 points, about 1.6%, after dropping more than 1,200 points to start the week.

The S&P 500 rose 1.6%, and the Nasdaq Composite added 1.9%. The gains were broad, with all 11 sectors of the S&P 500 rising, led by the energy group, and all 30 members of the Dow Jones Industrial Average in the green.

"The psychology is 'buy on the dip' and that's what's fueling this bear-market rally," said Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham. Some fund managers only have experience investing in the prolonged bull market of the past decade and have grown to expect a quick rebound, he said.

After days of turbulence in the oil markets, Brent crude, the global gauge for oil, was up 11% at $21.56 a barrel, after briefly plunging earlier in the day to levels last seen in 1999. The U.S. crude benchmark jumped 27% to $14.66 a barrel, following its lowest close in 21 years.

Investors are looking to corporate earnings for insight on how the pandemic is affecting U.S. businesses as a broad swath of blue-chip companies report their results.

Shares of Snap soared 22% after the social-media company reported a surge in the number of users as people who are homebound turned to its chat app for communicating with friends and family. Netflix shares ticked down 2.9% after the streaming giant on Tuesday evening said it ended the first quarter with nearly 16 million new subscribers. The stock has rallied sharply this year.

Expedia shares rose 8.6% after The Wall Street Journal reported the company is in advanced talks to sell a stake to private-equity firms as widespread travel bans hit the online-booking company's business.

Confidence is likely to remain fragile while analysts and investors are still slashing profit forecasts for 2020, according to Ken Peng, head of Asia investment strategy at Citi Private Bank. He expects global earnings to fall by about 50% this year, but consensus forecasts are still far from this figure.

"The markets will have more confidence, and more sustainably rally, once this revision momentum slows down," he said.

Investors are continuing to focus on oil after US. oil futures on Monday plunged below zero for the first time.

Oil prices rose Wednesday after President Trump said on Twitter that he had instructed the U.S. Navy to destroy Iranian gunboats "if they harass our ships at sea." Despite large percent moves, prices remain low.

"It's a geopolitical piece of news that has lifted the price at a time when the market has been heavily sold," said Ole Hansen, head of commodity strategy at Saxo Bank.

The ministers of major oil-producing nations didn't reach any decisions on starting production cuts as soon as possible following an informal call on Tuesday, according to Warren Patterson, head of commodities strategy at ING. Meanwhile, forecasts suggest that the Energy Information Administration's data on Wednesday may show that the increase in U.S. crude-oil inventories exceeded 10 million barrels for the fourth consecutive week.

The Trump administration is considering offering federal stimulus funds to embattled oil-and-gas producers in exchange for government ownership stakes in the companies or their crude reserves, The Wall Street Journal reported. But the plan faces long odds given likely opposition from congressional Democrats to using stimulus funding for the oil industry. Separately, Texas regulators on Tuesday deferred a decision on whether to make operators curtail production for the first time since the 1970s.

Some investors questioned how effective support from the U.S. government would be in shielding oil producers, or propping up the price of energy stocks.

"It's not realistic to expect there won't be any casualties from this type of move in the oil price," said Hugh Gimber, global market strategist at J.P. Morgan Asset Management. "If you do see government intervention, the pressure on corporates to avoid dividends and buybacks for a long period of time will be very strong."

The yield on the 10-year Treasury note inched up to 0.595%, from 0.571% Tuesday, in a sign that risk appetite may be returning.

Overseas, the benchmark Stoxx Europe 600 index climbed 1.3%. In Asia, Japan's Nikkei 225 closed 0.7% lower, while benchmarks in Hong Kong, South Korea and Shanghai ended higher.

Karen Langley and Caitlin Ostroff contributed to this article.

Write to Avantika Chilkoti at [e-mail] and Joanne Chiu at [e-mail]

(END) Dow Jones Newswires

April 22, 2020 10:30 ET (14:30 GMT)

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