Benchmarks turned in a mixed performance on Monday as markets digested the impact of Hurricane Harvey. Energy shares declined after the hurricane disrupted oil refineries in the coastal areas of Texas, rendering them dysfunctional. Meanwhile, the oil prices also declined, weighing further on energy shares. The tropical storm caused widespread destruction of property on the southern coast of U.S., leading to losses for commercial insurers and reinsurers. This led to a decline in shares of insurance companies such as Travelers which weighed heavily on the Dow as the blue-chip index ended in the negative territory. The S&P 500 ended in the positive territory buoyed by gains for healthcare and tech stocks. The healthcare stocks gained because of merger deals. The Nasdaq also finished in the green due to gains in tech and biotech shares.
The Dow Jones Industrial Average (DJIA) closed at 21,808.40, declining 0.1% or 5.27 points. The S&P 500 Index (INX) increased 1.19 points to close at 2,444.24. Meanwhile, the Nasdaq Composite Index (IXIC) closed at 6,283.02, rising 17.37 points or 0.3%. A total of only around 5.13 billion shares were traded on Monday, lower than the last 20-session average of 6 billion shares. Declining issues outnumbered advancers on the NYSE by 1.14-to-1 ratio. On the Nasdaq, decliners outnumbered advancers by a 1.02-to-1 ratio.
Hurricane Harvey Weighs on Energy Shares
Energy shares were impacted after tropical Hurricane Harvey, hit the coast of Texas, rendering oil refineries in the area dysfunctional. Harvey is by far the most powerful hurricane to have hit the southern coast of U.S. in the last 50 years, delivering about 30 inches of rain in Houston and leaving it flooded over the weekend. Conditions could worsen if engineers released water from overflowing reservoirs in order to safeguard the dams.
The coast of Texas houses approximately 30% of the total refining capacity of the U.S. and Houston alone hosts 15% of the total capacity. The shutting down of major oil refineries in and around Houston has impacted almost 15% of the nation’s total refining capacity. Exxon Mobil Corp. (XOM - Free Report) closed its Baytown refinery and Dutch Shell shut its Deer Park facility after the storm pummeled Texas. This disruption led to a decline in the energy shares. The Energy Select Sector SPDR Fund (XLE) was down 0.5%. Shares of Exxon, Chevron Corp. (CVX - Free Report) and Chesapeake Energy (CHK - Free Report) declined 0.4%, 0.4% and 3.7% respectively due to shutdown of refining operations.
Oil prices also declined on Monday. West Texas Immediate oil futures dipped 2.7% to $46.57 a barrel. Also, United States Oil Fund plummeted 2.3%. Economists said that it would take weeks before the refineries became fully functional and therefore the demand for oil by refineries would be low. This led to a decline in West Texas oil futures. Bureau of Safety and Environmental Enforcement announced on Sunday that a total of 331,370 barrels a day equivalent of crude-oil production was affected after the hurricane’s landfall.
Insurance Sector Battered by Harvey
Insurance stocks also declined after the destruction caused by Harvey. Current estimates place the estimated damage at around $30 billion and analysts expect it to be one of the costliest storms in the history of the U.S. In case of such natural calamities, insurance shares are sent lower due to high number of claim payouts.
As a result, shares of top American insurance companies like Travelers Companies Inc. (TRV - Free Report) , Allstate Corp (ALL - Free Report) and Progressive Corp (PGR - Free Report) all declined 2.5%, 1.4% and 2.2% on Monday. The SPDR S&P Insurance exchange-traded fund (KIE) dipped almost 1%, posting its worst day since April 28, 2017. Declining shares of Travelers weighed the heaviest on the Dow.
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