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Energy Sector Leads Stock Decline, But Transportation Sector Benefits; Chips Also Gain

Stocks faded Friday, as continued weakness in the energy sector led the market to a mixed close.

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Indexes recovered some in the final hour but still were lackluster. The Nasdaq composite rose 0.1% thanks to some relative strength in semiconductors stocks. The S&P 500 and the Dow Jones industrial average fell 0.2%. The Russell 2000 eased 0.1%.

Preliminary data showed lower volume, not surprising on the Friday before a three-day weekend on Wall Street. Financial exchanges will be closed Monday for Memorial Day. Declining stocks led advancers by 6-to-5 on the NYSE and the balance was almost exactly even on the Nasdaq.

Indexes continued to search for direction, ending the week with moderate gains.

While Fed policy, international trade and geopolitical risks were in focus earlier in the week, the energy sector was the main theme Friday.

The price of U.S. crude tumbled 4.2% to $67.75 a barrel. Energy ministers from Saudi Arabia, the United Arab Emirates and Russia are considering ways to boost output for the first time since 2016.

The SPDR Energy (XLE) ETF gapped down 2.6%, its worst loss since Feb. 8. The ETF made a 52-week high Tuesday but reversed lower and continued to drop the rest of the week. Eight of the 12 worst-performing industry groups were oil related.

With fuel prices falling, the transportation sector saw reason to climb. The Dow transports added 0.4%. Airlines were Friday’s second-best industry group, with logistics, transportation equipment and airfreight up modestly.

Another theme was the continued decline in bond yields. The bench mark 10-year Treasury note saw its yield fall 5 basis points to 2.95%. Yields fell after durable goods orders dropped more than expected in April, down 1.7%. It was the first decline since January and more than the 1.2% drop economists had forecast.

Homebuilders, which have been facing higher mortgage costs as yields have risen for much of 2018, were another leading industry. The group rose 1.5% but remains depressed and most stocks in the group remain deep in corrections.

The Innovator IBD 50 (FFTY) ETF was nearly flat. Oil stocks were some of the weakest in the IBD 50. WildHorse Resource Development (WRD) tumbled 3.5% and Cactus (WHD) 3.8%.

But ZTO Express (ZTO), a fairly new member of the IBD 50, raced nearly 5% higher. It is now extended from the 18.18 buy point of its base.

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