Summary

The major domestic equity indexes closed lower on Tuesday as a sharp decline in the price of crude oil hurt energy stocks. At the same time, retail stocks were pulled down by concerns about Amazon’s plan to increase its apparel business. There was also some residual concern over the future Federal Reserve rate hikes in conjunction with what appears to be a bit of slowing in certain sectors of the economy.

Healthcare was the brightest spot with a 0.3 percent increase in the sector index, while the consumer discretionary index showed a 1.25 percent drop, in line with the energy index decline.

Oil prices fell about 2 percent after news of increases in supply by several key producers, a trend that has undermined attempts by OPEC and other producers to support the market through reduced output.

The market deepened its losses heading into the close after comments by Dallas Federal Reserve President Robert Kaplan appeared to add to investor unease about the Fed’s projected pace of monetary policy tightening.

Kaplan said technology and globalization is holding down inflation, which suggested that low inflation might remain for a while.

Earlier, Boston Fed President Eric Rosengren said the era of low interest rates in the United States and elsewhere poses financial stability risks and that central bankers must factor such concerns into their decision-making.

The costliest congressional race in history – between Democrat Jon Ossoff and Republican Karen Handel – as a key political test for President Donald Trump’s pro-business agenda is also being watched on Wall Street.

Nasdaq’s biotechnology index rose 1.3 percent after a 2.5 percent jump the previous day. The S&P technology sector fell 0.8 percent, with the Microsoft and Apple causing most of the damage.

Approximately 7.1 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.86 billion share average for the last 20 sessions.

Crude Continues Slide Downward

The price of crude oil fell about 2 percent on Tuesday, with Brent settling at seven-month lows and domestic crude at its lowest price since September. The price decline comes after an increased supply from several key producers overshadowed high compliance by OPEC and non-OPEC oil producers with a deal to cut global output.

Brent closed 89 cents lower at $46.02 a barrel, its lowest settlement since Nov. 15, two weeks before OPEC and other producers agreed to cut output by 1.8 million barrels per day (bpd) for six months from January.

The domestic crude futures contract for July, due to expire on Tuesday, settled down 97 cents at $43.23, the lowest since Sept. 16. Both benchmarks were down more than 15 percent since late May, when OPEC, Russia and other producers extended limits on output until the end of March 2018.

OPEC and non-OPEC oil producers’ compliance with the deal to cut output reached its highest in May since they agreed on the curbs last year, reaching 106 percent last month, a source familiar with the matter said.

OPEC supplies, however, increased during May as output recovered in Libya and Nigeria, both exempt from the production reduction agreement. Libya’s oil production rose more than 50,000 bpd to 885,000 bpd after the state oil company settled a dispute with Germany’s Wintershall.

Nigerian oil supply is also rising. Exports of Nigeria’s Bonny Light crude are set to reach 226,000 bpd in August, up from 164,000 bpd in July, loading programs show.

Ahead of weekly U.S. inventory reports, domestic crude oil stocks were forecast to have fallen 2.1 million barrels last week, while gasoline was seen building by 400,000 barrels after last week’s data showed an unexpected build that weighed heavily on the market.

The investment community has become quite bearish about the outlook for oil prices as production from countries outside OPEC grows and threatens to undermine the effectiveness of OPEC’s output controls.

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