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Falling Consumer Sentiment and Commodity Prices Bring a Few Stocks Lower

By Matt Thalman - Apr 12, 2013 at 9:00PM

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When the underlying assets of a business declines, investors move to reduce exposure.

This morning, the Thomson Reuter/University of Michigan preliminary consumer sentiment report came in much lower than market participants were expecting. The index's reading thus far for April came in at 72.3, which represents the lowest reading over the past nine months. Economists had estimated a reading of 78.5, after the index hit 78.6 in March. 

This news, as well as a report indicating that retail sales also fell last month, sent the markets moving lower today. The S&P 500 was the worst-performing index, as it declined by 0.28%. The Nasdaq fared slightly better, only losing 0.16% of its value, while the Dow Jones Industrial Average (^DJI 1.98%) nearly broke even, losing just 0.08 points, or essentially 0.00%.

In addition to stocks moving lower, commodities also fell today. My colleague Travis Hoium touched on why gold may have dropped today, after the precious metal lost more than 4% this afternoon.

Light Crude also lost today, as the price per barrel fell 2.37%. This is likely one reason why shares of Dow components Chevron (CVX 2.32%) and ExxonMobil (XOM 2.21%) ended the session lower. Chevron fell 0.84%, while Exxon fared slightly better, only losing 0.26% of its value.

Chevron may have declined more due to the stock's recent run-up. Shares hit a high this week at $121.15, after an analyst at Morgan Stanley put a new price target of $135 per share on the stock. Despite today's pullback, shares still managed to gain more than 2% during the week, and have risen 10.91% since the beginning of 2013.  

The other factor weighing on both Chevron and Exxon today was the poor consumer sentiment report. One common result from declining confidence is less demand for gasoline, as American's tighten their belts and drive less. Not only did the price per barrel of crude fall today, but the per gallon price of unleaded gasoline dropped by 1%. When the oil companies realize a lower price for goods sold, lower revenue and profits usually follow. Mix lower expected profits with a recent run-up in share price, and it's easy to see why there were more investors selling Chevron than buying shares today.

Alcoa (AA) was also hurt by falling commodity prices. While the aluminum manufacturer saw its share price fall 1.2% today, the price of aluminum fell by 1.19%. Growing concerns that the global economy is slowing, which would likely weaken demand, and a growing supply of the metal, continue to put downward pressure on the per ton price of aluminum. Although the company recently beat earnings estimates, it missed on revenue, which is a sign that the management team is running a tight ship. But, if the price of aluminum continues to decline, there may not be anything management can do to keep the company profitable.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,880.24 (1.98%) $618.34
Alcoa Inc. Stock Quote
Alcoa Inc.
Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
$93.89 (2.21%) $2.03
Chevron Corporation Stock Quote
Chevron Corporation
$171.72 (2.32%) $3.90

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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