May 25, 2022

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Stock Market Today: Stocks Jolted Awake as Oil Enters Bear Market

Another precipitous decline in oil prices, as well as hints of an easing in other inflationary pressures, managed to snap losing streaks across the major indexes Tuesday.

U.S. crude oil futures continued their recent dive, shedding 6.4% to $96.44 per barrel – enough to put the commodity into bear-market territory from its March 8 highs. Oil was dragged down by ongoing peace talks between Ukraine and Russia, as well as a surge in China’s COVID-19 caseload, which could spark additional shutdowns that could reduce demand.

Also Tuesday, the Bureau of Labor Statistics reported that February’s U.S. producer prices increased 0.8% month-over-month (10% year-over-year), coming in slightly less hot than expectations for 0.9% growth.

“Prices excluding food, energy and trade rose only modestly, suggesting some easing in core inflation,” says Barclays economist Pooja Sriram. However, she warns the relief might be short-lived.

“We expect to see increased momentum in food prices going ahead, due to the disruption in food supply caused by the Ukraine-Russia conflict. Energy prices are also likely to contribute solidly to both producer and consumer price pressures in the near term given the swings in oil prices.”

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After a dismal Monday session, tech stocks (+3.4%) and consumer discretionary companies (+3.4%) were out in front of Tuesday’s rally. The Nasdaq soared 2.9% higher to 12,948, followed by the S&P 500 (+2.1% to 4,262) and Dow (+1.8% to 33,544).

Other news in the stock market today:

  • The small-cap Russell 2000 rallied 1.4% to 1,968.
  • Gold futures retreated 1.6% to end at $1,929.70 an ounce.
  • Bitcoin advanced 2.4% to $39,767.28. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
  • AMC Entertainment (AMC) shot up 6.8% today after the movie chain said it agreed to buy a $27.9-million stake in Denver-based gold miner Hycroft Mining Holding (HYMC). This works out to roughy 23.4 million HYMC shares and will give AMC an approximately 22% stake in the company. The news sparked major volatility in HYMC stock, which ended the day up 9.4% after nearly doubling at one point, AMC Entertainment CEO Adam Aron was scheduled to discuss the purchase on CNBC, but cancelled due to the wild volume in Hycroft shares today. “To state the obvious, one would not normally think that a movie theatre company’s core competency includes gold or silver mining,” Aron said in AMC’s press release. “In recent years, however, AMC Entertainment has had enormous success and demonstrated expertise in guiding a company with otherwise valuable assets through a time of severe liquidity challenge, the raising of capital, and strengthening of balance sheets, as well as communicating with individual retail investors. It is all that experience and skill that we bring to the table to assist the talented mining professionals at Hycroft.”
  • Airline stocks caught a bid today after several of the major carriers said bookings came in ahead of expectations, signaling increased travel demand. Delta Air Lines (DAL) jumped 8.7% after saying bookings are outpacing its 2019 numbers, while United Airlines (UAL, +9.2%) and American Airlines (AAL, +9.3%) also ended the day higher.

A Case for Small Caps

Many corners of the market are going to hinge sharply on how Russia’s invasion of Ukraine plays out. But one area that might be set up for success either way is small-cap stocks.

Small caps have been severely beaten up since November, and the Russell 2000 Index of small companies has been in bear-market territory for more than a month. But BofA sees several reasons to be rosier on these stocks.

For one, they’re a relative bargain compared to large caps, even after perking up from historical discounts a month ago. And Jill Carey Hall, head of U.S. Small/Mid Cap Strategy for BofA Securities, says that “while geopolitical conflict is typically a short-term negative for equities … we would continue to prefer domestically-oriented U.S. small caps over large caps in the current backdrop.

“History suggests that small caps outperformed on a cumulative basis over the full Cold War period, and saw particularly strong outperformance during the 1970s/early 80s,” she adds.

Investors looking to dive right in might consider these 12 top small-cap stocks for 2022. But if the risk of investing in small individual companies seems a little high, you can always spread it over hundreds or even thousands of companies via small-cap exchange-traded funds (ETFs). These 10 small-cap ETFs in particular provide a wealth of ways to leverage companies that sport little market capitalizations, but mighty growth potential.