S&P 500 Index Dragged Lower by Plunge in Oil Prices Amid China COVID Protests

The benchmark S&P 500 Index futures contract is under pressure early Monday as protests from China’s prolonged COVID restrictions offset the optimism fueled by expectations the Federal Reserve would step down its aggressive rate hike path.

At 13:45 GMT, the S&P 500 Index is trading 4003.00, down 29.50 or -0.73%. On Friday, the S&P 500 ETF Trust ETF (SPY) settled at 402.45, up $0.03 or +0.01%.

Over the weekend, hundreds of demonstrators and police clashed in Shanghai as protests over China’s stringent COVID restrictions flared for a third day and spread to several cities in the wake of a deadly fire in the country’s far west.

The wave of civil disobedience is unprecedented in mainland China since President Xi Jinping assumed power a decade ago, as frustration mounts over his signature zero-COVID policy nearly three years into the pandemic. The COVID measures are also exacting a heavy toll on the world’s second-largest economy, Reuters wrote.

Shares of companies with big production facilities in the country led premarket losses. Shares of Apple lost nearly 2% and Tesla declined 2.2% in premarket trading.

Energy Sector Weakens as Oil Erases 2022 Gains

The energy sector of the S&P 500 Index is under pressure in the premarket session Monday as oil prices plunged to their lowest level in a year, with investors assessing the potential effect of civil unrest in China on global growth and fuel demand.

The Energy Select Sector SPDR Fund ETF (XLE) is down more than 2% before the bell. The weakness is being generated by shares of Chevron and Exxon Mobil, which dipped 1.9% and 2.1% respectively. U.S. benchmark WTI crude oil, meanwhile, slip 3.1% to $73.90 per barrel.

The last time WTI traded lower at any point in trading was Dec. 27, 2021, when the price came down to $72.57.

Tech Sector Stocks Slide Led by Apple and Tesla

The technology sector of the benchmark index is being led lower by companies with exposure to China including Apple and Tesla, which are down 2%. Other tech shares, down at the start of this week’s broader market sell-off were Micron Technology, Nvidia and AMD, all fell more than 1%.

Looking Ahead…

In the last week of the month, investors will be watching more earnings reports. Intuit, Salesforce and Five Below are among companies scheduled to report earnings.

A slew of economic releases including personal consumption data and the Non-Farm Payrolls report for November are expected to give further information on the state of the economy.

Daily Forecast

Some investors will be bargain hunting on the cash market opening on Monday because they believe the protests in China will eventually subside with investors shifting their focus back to Fed policy expectations.

Last week, the S&P 500 Index was lifted by the minutes from the Fed’s November meeting which confirmed a likely shift in policy. The minutes signaled that the central bank would step down its aggressive rate hike path as inflation cools.