Following a first-quarter gain that ignited markets in 2023, oil prices soared on Monday, driving the Dow higher and giving investors a new wrinkle to start the second quarter.
The Dow Jones Industrial Average (DJI) was up 326 points, or 0.98%, when the Wall Street closing bell sounded on Monday. The Nasdaq Composite (IXIC), which is heavily weighted towards technology, was the day’s loser, declining 0.27%.
Crude oil prices increased on Monday as a result of the market-shaking announcement over the weekend of an unexpected oil production cut from OPEC+. On Monday, the price of oil increased by more than 6%, with WTI crude oil—the U.S. benchmark—trading above $80 per barrel and Brent crude oil—the international benchmark—close to $85 per barrel.
The Blue Chip Dow led markets at the start of the week thanks to a 4% increase in Chevron (CVX) shares. To lead the Dow, UnitedHealthcare (UNH) gained close to 5%.
The OPEC+ oil cartel, which consists of Russia and OPEC members, declared on Sunday that it would reduce daily oil production by more than 1 million barrels starting in May and continuing through the end of the year.
“Even though, like OPEC, we only anticipate muted demand growth this year,” said Caroline Bain, chief commodities economist at Capital Economics, in a note to clients on Monday, “the scale of supply cuts will send the oil market balance into a deficit in 2023, with an even larger deficit in Q4.”
Due to an abundance of supply and worries about the state of the world economy, the price of oil fell to its lowest level in 18 months last month. Additionally, oil prices were squeezed by a rise in the dollar as investor worries over the banking crisis increased.
However, as concerns about a severe global financial crisis have subsided, the dollar has weakened and WTI has increased by almost $10/barrel over the last two weeks of March.
The Federal Reserve’s role, which has increased interest rates in an effort to reduce inflation, may also become more challenging in the event of another rise in oil prices. A significant increase in so-called “headline” inflation, which includes energy prices, might complicate the messaging on a pause in interest rate rises later this year, even if the Fed’s preferred inflation metrics exclude the costs of food and petrol.
According to data released on Friday, the Personal Consumption Expenditures (PCE) Index revealed that overall inflation grew by 5% over the previous year in February, while the core PCE showed that prices increased by 4.6%.
The more widely regarded Consumer Price Index revealed that in February, headline inflation came in at 6% over the previous year. The Fed wants inflation to be 2%.
The U.S. manufacturing sector received two important readings on Monday from S&P Global and the Institute for Supply Management, both of which showed a decline in activity in March.
Both indicators showed a decline in manufacturing activity in March, with the ISM index falling for the fifth consecutive month to a level of 46.3, the lowest level since May 2020. This index’s results should be over 50 to indicate sector expansion and below 50 to indicate sector contraction.
Oren Klachkin, the head U.S. economist at Oxford Economics, stated in a note to clients on Monday that the March ISM Manufacturing data “indicates that factory activity weakened through the end of last quarter.”
With the exception of the sharp decline at the beginning of the epidemic, “we expect the sector to have its worst year since the global financial crisis,” as weak demand and tighter lending conditions drive activity to decline.
The ISM PMI fell on Monday, marking the index’s fifth consecutive monthly dip and its fourth consecutive month of showing a decline in manufacturing activity.
The parent company of the UFC, Endeavour (EDR), announced a deal to merge with World Wrestling Entertainment (WWE), creating a new business that will trade under the symbol “TKO.” This news will cause investor interest in other markets on Monday.
WWE will hold a 49% stake in the new business, with Endeavour owning 51% of it.
According to a press release from the firms, the new business will have an enterprise value of more than $21 billion and will report 2022 revenues of $2.4 billion, growing at a 10% annual pace since 2019.