Friday brought a bad close to the week for the stock market. Major market benchmarks all lost ground, with the Dow closing the day down 120 points, and the S&P and Nasdaq posting declines of around 1% to 1.25%. General uncertainty about the future direction of a number of financial markets was partly to blame for the downturn, but the energy sector once again received a substantial amount of attention.
In particular, crude oil prices came crashing back downward, closing at just under $49 per barrel, and spurring further concerns that the big bounce in energy could prove short-lived. That was a big part of why so many energy-related stocks were among the day's decliners, and Chesapeake Energy (NYSE:CHK), Dynegy (NYSE:DYN), and Pier 1 Imports (NYSE:PIR) were some of the poorest performers in the stock market on Friday.
Chesapeake Energy fell 9% on a tough day for the energy giant. In addition to the decline in oil prices, natural gas came under pressure, as well. Futures contracts for natural gas fell 1.5% to 2%, and that was enough to make the stock decline sharply despite representing just a tiny giveback of the impressive gains that the clean-burning fuel has posted in the past couple of weeks.
Near-month natural gas prices remain above $2.55, up from as low as $2.10 in late May, but investors are nervous that Chesapeake's share price had already taken for granted a further increase off the energy markets' lows from earlier this year. Given the precarious financial condition that Chesapeake is in, the company needs extremely favorable industry dynamics in order to maximize its potential gains.
Dynegy dropped 12%, adding to declines throughout the power industry after getting downgraded by analysts at Citi. As the company's rivals have seen in recent days, investors are increasingly concerned about the health of the wholesale power-generation market. Those who follow that market believe that the risks of a long-term decline are on the rise, especially in light of long-term power-supply auction results that haven't been as strong as some had predicted.
Dynegy is in the process of moving its energy production to what's known as the PJM market, which will give Dynegy more exposure to the ups and downs in the power market. That could work out well if electricity prices are strong, but future downturns could hurt Dynegy more as a result.
Finally, Pier 1 Imports declined 6%. The home-furnishings retailer didn't have any market-moving news of its own, but the entire segment of the retail industry has reeled since Restoration Hardware announced troubling results earlier in the week.
Investors will get a chance later this month to see whether Pier 1 will manage to avoid the same headwinds that have hurt Restoration Hardware and its peers, with Pier 1 expected to announce its quarterly earnings on June 29. Until then, though, the entire sector is likely to trade in lockstep, and that could spell trouble for Pier 1 and other home-furnishings specialists if investors can't see a quick turnaround coming.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Restoration Hardware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.