Wall Street Breaks Losing Streak with Modest Gains

Wall Street ended a four-day sell-off on Tuesday, with the Nasdaq, S&P 500 and Dow Jones all posting modest gains of 0.01%, 0.10% and 0.28% respectively. Meanwhile, US Treasury yields continued to rise, with 10-year bond yields hitting their highest level of the month.

One of the overriding themes this year has undoubtedly been energy prices. In March, crude oil prices soared to their highest levels since 2008 in response to Russia’s invasion of Ukraine. This consequently exacerbated inflation which was already getting out of hand due to supply chain disruption caused by the Covid-19 pandemic.

However, since June, oil prices have been falling. Brent crude and WTI have both slumped 37.5% and 38.4% respectively from their March highs. In the process, both benchmarks have almost entirely wiped out their gains for the year.

Yesterday, Brent closed the session with a year to date (YTD) gain of 2.8%, whilst WTI’s YTD gain stood at 1.4%. Thus, crude oil prices sit not far from where they began the year, but with a very different outlook indeed.

Primarily, the prospect of a global recession is weighing heavily on oil prices. Put simply, when the economy contracts, oil demand declines, which naturally pushes price down.

Furthermore, a surge of Covid-19 cases in China, the world’s largest importer of crude oil, has also generated concern regarding the outlook for demand. Nevertheless, supporting prices yesterday was a larger than expected decrease in US crude oil stocks, suggesting that oil demand remains robust.

Given the economic outlook, it would not be surprising to see crude oil prices continue to struggle as we enter the new year. As well as monitoring the situation in China, oil traders will want to watch out for the next scheduled meeting of OPEC+ in February, during which they are likely to discuss production targets.

Despite yesterday’s gains on Wall Street, S&P 500 component Tesla slumped more than 8%, as investors fear CEO Elon Musk may have finally spread himself too thin.

Besides Tesla, Musk is also CEO of Twitter and SpaceX, founder of The Boring Company – a tunnel construction startup – and cofounder of Nueralink, a neurotechnology startup.

It is the most recent of these positions, Twitter, which appears to have turned the markets against the electric vehicle manufacturer. The latest sell-off comes after a number of brokerages slashed their price targets on Tesla stock this week, making particular note of Musk’s Twitter distraction.

The Tesla share price has tumbled more than 60% in 2022, massively underperforming the wider stock market, and has fallen almost 40% since Musk completed the acquisition of Twitter and crowned himself CEO at the end of October.

However - less than two months after taking the reins, with a handful of controversial decisions under his belt - Musk held a Twitter poll over the weekend, asking followers whether he should step down as Twitter CEO.

More than 57% of 17.5 million voters answered in the affirmative, with Musk subsequently confirming yesterday that he will abide by the result and step down once he finds a suitable replacement.

This move is likely to benefit Tesla’s stock in the long-run, freeing Musk up to focus more on Tesla amidst a complicated economic climate and repairing some of the damage Musk’s recent antics have had on the company’s brand. However, until a Twitter successor is actually named, this drama is likely to continue to play out.

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