Oil crash sends US stocks to 15-month low

Oil’s failure to sustain a rally has damped attempts by US stocks to rebound from August, as investors take morning rallies as a chance to reduce risk.

Investors flocked to the relative safe havens of gold and government bonds, with yields on 10-year U.S. Treasury notes falling just below 2 percent Wednesday. The Nasdaq is down another 3.5%.

Overseas markets also sold off sharply. The Dow is now down more than 11% in 2016.

“Despite improving valuations, global equities continue to get hammered”, Bespoke Investment Group wrote in a client note.

Back in markets, “this isn’t fun for anybody”, says Steven Wagner, co-founder of Omnia Family Wealth, a wealth- management firm based in Aventura, Fla., that manages more than $1 billion.

USA crude prices sank 6.6 per cent and Brent crude fell 4.7 per cent as a supply glut bumped up against bearish financial news that deepened worries over demand. It closed at $26.55 a barrel, leaving it down an incredible 28% since the beginning of the year.

“This is worrying times for investors as the market is showing signs of pure panic and is being dominated by fear as each day brings its new set of challenges”, said James Hughes, chief market analyst at GKFX. Smaller regional banks could to be more exposed relatively than the big Wall Street banks. Eight stocks in the S&P 500 fell more than 9 percent Wednesday.

On Wednesday, the International Energy Agency warned that oil markets could “drown in oversupply”, adding that Iran’s return to the market is unlikely to be balanced out by production cuts from other countries.

Oil and gas companies led the way down Wednesday as sliding oil prices threatened even more damage to the battered energy sector. Already, dozens of oil companies have filed for bankruptcy. And the price of oil has now fallen so low that investors are also anxious that it could mean global economic growth is much weaker than expected, which could hurt all companies. That’s market jargon for when an index or a stock dives 20% from a prior high.

It’s significant because the transports, along with the industrials, determine whether “the market” is bear or bull. The Dow Jones Industrial Average is a mere 322 points, or 2%, from setting a new low to complete a Dow Theory bear market signal (see January 14 Daily Market Outlook).

United States corporate earnings are unlikely to offer relief: S&P 500 earnings on average are expected to fall 4.4 per cent, according to Thomson Reuters data.