The S&P 500 Index (SNPINDEX:^GSPC) has been doing its best yo-yo impression over the past week. Today's close was almost 1.8% lower, giving up almost 60 points after gaining 67 points, or 2%, yesterday. It's the fourth session in the past five market days that the index, which makes up about 80% of total U.S. stock market capitalization, either gained or lost more than 1.75%.
This marks nearly a week of high volatility that's mostly been to the downside. Since a record close of 3,580.84 on Sept. 2, the S&P 500 has lost almost 7% of its value. Today's sell-off, like most of the volatility we have seen this week, was broad, with the vast majority of the 505 stocks in the index finishing lower. Several sectors saw every stock fall on the day, and no sector had more gainers than losers.
The hardest-hit sectors today were energy and technology. Nine of the 10 worst-performing stocks today were oil stocks, with EOG Resources (NYSE:EOG), Apache Corp (NASDAQ:APA), and Occidental Petroleum (NYSE:OXY) all falling 8% or more. Trillion-dollar tech giants Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT) all lost 2.8% or more today. The continued skid has all three down more than 10% from their highs this month.
Historically high unemployment weighs on stocks
Another week goes by with record-shattering levels of unemployment claims. According to the U.S. Department of Labor's weekly unemployment report, another 884,000 people filed initial unemployment claims last week. While this is far below the peak of nearly 7 million weekly first-time claims set in late March, every single week since would have shattered the prior record.
Combine that with a persistently high unemployment rate and a plunging workforce participation rate that's the lowest in more than four decades, and the U.S. economy remains deep in a recession.
A combination of actions by the federal government early in the coronavirus pandemic, including financial support to families and businesses, along with the Federal Reserve's monetary and interest rate stimulus, has helped lead a booming recovery in stocks from the March lows.
Tech stocks in particular have led the rally, with companies like Microsoft and Amazon providing critical services and products that consumers and enterprises have relied on to function, and Apple's high-profit iPhone and related services businesses have held up remarkably well.
Over the past week, investors have started getting antsy, selling the Big Tech names and largely cashing out of stocks as other sectors continue to struggle under the specter of an ongoing global pandemic that many fear could get worse as summer turns to autumn.
Another hit to the oil patch sends oil stocks falling
Crude oil prices fell 2.5% today, with key U.S. benchmark West Texas Intermediate down to $37.06 per barrel following two weekly surveys reporting a 2-plus million barrel increase in crude oil in commercial storage in the U.S. over the past week. Total petroleum inventories, including refined products like gasoline and diesel, fell 3.4 million barrels last week, but the expectation was for a bigger drawdown that didn't happen.
Refinery activity also came in lower as the industry transitions from the summer peak demand season into the fall maintenance cycle. Compared to the year-ago period, the industry continues to deal with a double-digit drop in demand, with distillate and gasoline production down almost 1.5 million barrels per day, year over year last week.
This is a bad news chaser after last week's shot of pain when Saudi Arabia threw its pricing power squarely at the U.S. oil market, sending crude prices back into the $30s.
The news hit the energy sector hard: The Energy Select Sector SPDR ETF (NYSEMKT:XLE), which invests in all 26 S&P 500 energy sector stocks, fell 3.6% today. The sector is down almost 8% over the past week.
Independent oil producers had the worst day, since these companies are most directly impacted by weak demand and falling oil prices. Services companies like Halliburton (NYSE:HAL) and Schlumberger are next in line, since they provide services to producers that are in far less demand in the current environment. Both companies saw their stocks fall 5% or more today.
Even refiners like Marathon Petroleum (NYSE:MPC) and Phillips 66 (NYSE:PSX), which are less exposed to low oil prices but still affected by weak demand, took it on the chin today, with their shares down over 4% in today's sell-off.
While the refiners and well-capitalized service providers should have little trouble riding out the oil downturn, many producers are facing an economic environment they simply cannot survive in. Without a rebound in demand, Saudi Arabia isn't going to take its boot off of the throat of every marginal producer out there. And that includes a lot of U.S. shale oil producers.
The first half of 2020 was one of the most volatile periods on record for stocks. And after a relatively calm summer, the past week has brought a sharp return to big swings, both up and down. It's also providing a supercharged reminder that while stocks have proven incredible long-term wealth builders, they can be brutally painful to own in the short term.
For investors working with wealth they will be counting on for living expenses in the next few years, that could prove disastrous; for investors looking to build up their wealth for their needs well into the future, this extreme volatility is the stuff that can drive the best long-term gains.
Either way, investors should accept -- even embrace -- the reality that volatility is likely here to stay, particularly with so much economic and political uncertainty driving people's trading decisions in the weeks and months ahead.