Biden’s economy: Stocks fall after higher gas prices and inflation concerns rise

Worries over rising gas prices as well as concern about inflation and lower unemployment numbers combined to drive down U.S. equity futures ahead of the opening bell on Wall Street, Monday.

As of this writing, still ahead of the bell, all of the major indices were in positive territory from their close on Friday. The Dow Jones Industrial Average listed at 31496.3, a slight gain of 1.85 percent, as the S&P 500 sat at 3841.94 (+1.95) with the NASDAQ at 12920 (+1.55).

But S&P futures dipped Monday even as news of employment gains along which were offset by increases in gas prices in recent weeks have left economists fretting over the potential for new inflationary pressures which, if they materialize, will put a damper on the post-pandemic economic recovery.

That said, the economy could get a boost from the aid package that narrowly passed the Senate on Saturday, which provides direct payments of up to $1,400 to most Americans while extending emergency unemployment benefits. 

Friday’s gains “capped a volatile day of trading to finish last week with a broad rally that snapped the market’s three-day losing streak,” The Associated Press reported, recapping the small gains made by the larger indexes and noting that smaller ones, like the Russell 2000, continue to outperform.

On Friday, the government reported that employers added hundreds of thousands of jobs in February, far more than economists had forecast in what is generally seen as an encouraging sign for the economy.

However, the rise in employment also led to gains in Treasury yields, which fueled concerns that inflation gains may also lead to interest rate increases, which in turn would make borrowing more expensive and lead to a decline in the sales of homes, cars, and other big-ticket consumer items.

Inflation fears are being driven in large part by rising oil prices, which fell during the pandemic as travel significantly declined along with demand. But in recent months as more of the country reopened, demand has picked up and oil prices have responded accordingly.

There have also been production issues that have led to a decline in stocks and reserves. Last month’s winter storm freeze stretched as far south as Texas and disabled production of about 4 million barrels of crude per day, sending prices to $60 a barrel and higher.

Bloomberg News reported that production in Texas’ lucrative Permian Basin fell by as much as 40 percent — the most ever — as temperatures dipped well below freezing. Before the storm, which also knocked the state’s power grid offline for a few days, U.S. oil production had reached 11 million barrels per day.

As prices rose last week, some industry analysts speculated that OPEC and its allies would remove production restrictions and pump more oil into the market. However, the cartel left them in place despite increased demand.

“Benchmark U.S. crude rose $1.27 to $67.36 a barrel in electronic trading Monday on the New York Mercantile Exchange. It jumped $2.26 to $66.09 per barrel on Friday,” the AP reported. “Brent crude, the international standard, gained $1.36 to $70.72 a barrel.

Prices spiked last week after rebels in Yemen claimed to have attacked a Saudi Arabian oil production facility. A Houthi military spokesman claimed responsibility for the missile and drone attack, CNBC reported.

“Such acts of sabotage do not only target the Kingdom of Saudi Arabia, but also the security and stability of energy supplies to the world, and therefore, the global economy,” the Saudi government said via state media. “They affect the security of petroleum exports, freedom of world trade, and maritime traffic.”

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Jon Dougherty

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