June 17, 2024
Dow closes up by more than 300 points after surprise OPEC+ production cut

Dow closes up by more than 300 points after surprise OPEC+ production cut

Dow industrials and the S&P 500 finished higher on Monday for the fourth straight trading session, as investors reacted to a surprise oil-production cut announced by Saudi Arabia and its allies over the weekend.

What happened
  • The Dow Jones Industrial Average DJIA, +0.98% finished up by 327 points, or 1%, at 33,601.15.
  • The S&P 500 SPX, +0.37% closed up by 15.20 points, or 0.4%, at 4,124.51.
  • The Nasdaq Composite COMP, -0.27% ended down by 32.45 points, or 0.3%, at 12,189.45.

On Friday, the Dow eked out a 0.4% quarterly rise for the first three months of 2023, while the S&P 500 rose 7% for its biggest quarterly gain since the final three months of 2021, and the Nasdaq surged 16.8% for its biggest jump since the second quarter of 2020.

What drove markets

U.S. oil futures CL.1, -0.01% rallied more than 6% and finished above $80 a barrel on Monday, a day after Saudi Arabia and its OPEC+ allies unexpectedly said they would take more than a million barrels a day off the market starting in May.

OPEC+ is made up of the Organization of the Petroleum Exporting Countries and its allies, including Russia. The Financial Times reported the Saudis were upset after the White House said that it had no plans to refill the U.S. Strategic Petroleum Reserve.

Read: Why OPEC+ cut oil production: 6 things investors need to know

Traders and investors were attempting to weigh what the OPEC+ announcement means in the medium term, said Derek Tang, an economist at Monetary Policy Analytics in Washington. “After the recent bank turmoil, people were thinking that the Fed might be done with hiking rates and might start cutting soon. But if inflation is higher, it’s harder for policy makers to stop hiking and start easing.”

“Some sectors will benefit more than others in an energy-price shock,” and Monday’s moves are “part of the process of the market figuring out where the benefits will flow,” Tang said via phone.

The yield on the 1-month T-bill rate jumped 17 basis points to 4.66% as traders factored in a more than 50% likelihood of another quarter-point rate hike by the Federal Reserve in May. Meanwhile, the yield on the policy-sensitive 2-year Treasury note TMUBMUSD02Y, 3.969% fell 8.2 basis points to 3.978% as traders also weighed weak U.S. manufacturing data. Yields and debt prices move opposite each other.

The jump in oil prices might make the Federal Reserve’s inflation-fighting job “a little more difficult,” but it is too soon to know for sure, St. Louis Fed President James Bullard said in a Bloomberg Television interview.

The surge in crude prices was a boon for shares of energy producers. The Energy Select Sector SPDR ETF XLE, +4.53% closed 4.6% higher and Marathon Oil Corp. MRO, +9.89% ended up by 9.9%.

Chevron Corp. CVX, +4.16% shares ended 4.2% higher and was one of the Dow’s top gainers. Exxon Mobil Corp. XOM, +5.90% shares finished up by 5.9% and Occidental Petroleum Corp. OXY, +4.40% shares gained 4.4%.

Read: Energy ETFs jump after OPEC+’s unexpected oil-production cut, soaring past S&P 500 in Monday trade

In Monday’s data releases, the Institute for Supply Management said its March manufacturing index dropped to 46.3% from 47.7% a month earlier. That’s the lowest level since May 2020, when the pandemic shut down much of the U.S. economy. Numbers below 50% signal that the manufacturing sector is contracting. The last time the index fell five months in a row was in 2019, during a trade fight with China. Economists polled by The Wall Street Journal had expected the index to come in at 47.3%.

“There are a lot of peripheral existential risks to the market competing against the potential for cash to come in and create a momentum bull market,” said Phil Toews, chief executive of Toews Corp. in New York. Those risks include emerging “challenges” in the banking sector and continued high valuations for stocks, he said via phone.

Companies in focus
  • Tesla Inc. TSLA, -6.12% shares finished down by 6.1% after the electric-vehicle maker said on Sunday that it had delivered 422,875 vehicles in the first quarter, shy of the 432,000-unit number that analysts tracked by FactSet had been projecting on average. Tesla also reported production of 440,808 units for the quarter.
  • Shares of Endeavor Group Holdings Inc. EDR, -5.89% closed 5.9% lower after the parent of the mixed martial-arts organization UFC said it had agreed to combine with World Wrestling Entertainment WWE, -2.15% to form a new publicly listed company with a combined enterprise value of $21.4 billion. WWE shares ended down by 2.2%.

— Steve Goldstein contributed to this article.

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