Worries about the Libyan revolt’s impact on oil prices took the froth off US stocks this week, in what traders said was a long-awaited correction after a muscular climb from November.
After reaching highs not seen since June 2008 — and in the NASDAQ’s case, October 2007 — turmoil in the oil exporting nation over the weekend set the tone for the week.
Without any inspiring US data — the fourth-quarter growth rate for last year was revised downward to 2.8 percent on Friday — worries over the geopolitical significance of the revolt in North Africa held sway.
The Dow Jones Industrial Average dropped 3 percent from its Feb. 18 high by midday on Thursday before recovering on Friday at 12,130.45, for a weekly loss of 2 percent.
The broader S&P 500 moved in parallel, trading down on Thursday — when London oil prices shot up to nearly US$120 a barrel — by as much as 3.5 percent, before making back half the loss by Friday, closing at 1,319.88.
The more volatile NASDAQ lost as much as 4.2 percent during the week from the Feb. 18 close before pulling back to 2,781.05 on Friday, giving up 1.9 percent.
While Wall Street broadly reflected the scare of higher oil prices — airlines sunk, banks fell, but oil companies jumped — analysts characterized it as a broad, awaited correction after a nearly breathless climb since mid-November.
“We were poised to see a bit of a pullback anyway,” Marc Pado of Cantor Fitzgerald said, pointing to the weak volumes going into the week. “We have been very resilient, but the momentum waned toward the end because we didn’t have many catalysts to keep the market moving higher. The market needed a breather.”
Pado called Friday’s recovery a “technical bounce” after overselling.
“We were trading well above our 200-day moving average,” Gina Martin of Wells Fargo Securities said.
“We definitely had run very high, very far with no correction,” she said.
Martin said investors were focused on the oil price rise and its possible impact on economic growth. The week saw Libya’s exports of its valued 1.6 million barrels a day of light sweet crude mostly shut down, with the ongoing insurrection against Muammar Qaddafi showing little sign of early resolution and oilfield personnel being evacuated.
While oil giant Saudi Arabia indicated it could step in to replace lost volumes on the international market, experts said that there would still be some time and work for the market to adapt to the Saudi heavy crude.
“Regardless if Saudi Arabia adds on oil production, we have those ongoing risks of disruption and that’s caused investors a bit of a pause,” Martin said.