Oil crash pummels stocks and bond yields; dollar rises

Stock markets around the world fell on Tuesday, as a collapse in oil prices brought on by oversupply and a shortage of storage further exposed the depth of economic damage from the coronavirus outbreak and sent investors looking for shelter.

While gold is often seen as a safe-haven bet, even that commodity declined as investors looked to raise cash.

As the difficulties of restarting the U.S. economy sank in, U.S. Treasury yields tumbled, with the five-year note hitting a new record low on rising prices for bonds: one of the safest assets.

Brent oil futures prices plunged again on Tuesday as panic extended to a second day with no end in sight to a swelling global oversupply as the pandemic has obliterated demand for fuel and led to a dearth of storage space.

Oil demand has shriveled as worldwide lockdowns have kept people at home and businesses shuttered in efforts to contain the spread of the highly contagious virus.

The most actively traded U.S. futures – for oil to be delivered in June – briefly sank into single-digits before settling down 43.4% at $11.57 per barrel. On Monday traders had to pay $37.63 to get rid each barrel of oil under the May contract, which closed at $10.01 per barrel on Tuesday. Brent settled down 24.4% at $19.33 per barrel.

“It’s one thing to have to keep lowering prices, but if you have to shut off wells because we’re out of storage, that’s a huge problem. It’s massively expensive to do and undo,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, Charlotte, North Carolina, who says many smaller oil companies would go out of business as a result.

Equities around the world tumbled, with Wall Street’s major stock indexes following Europe and Asia lower.

The Dow Jones Industrial Average fell 631.56 points, or 2.67%, to 23,018.88, the S&P 500 lost 86.6 points, or 3.07%, to 2,736.56 and the Nasdaq Composite dropped 297.50 points, or 3.48%, to 8,263.23.

The pan-European STOXX 600 index lost 3.39% and MSCI’s gauge of stocks across the globe shed 3.02%. Emerging market stocks lost 2.40%.

Many equity investors saw swooning oil prices as a signal to “go to cash and get out of the market,” said Zaccarelli.

“The bright spot is that people are becoming more realistic about what the future holds. The idea we would have a quick V-shaped recovery in the economy was way too optimistic,” he said. “It’s a wake-up call for companies to be more cautious with their cash flow and make plans for an extended downturn.”

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