Commodities Futures and Options Brokerage

Paragon Commentary

Futures File: Stocks, Corn & Gasoline

Feb 09, 2018

Stock Bears Win Big

U.S. stock markets plunged, then surged, and then plunged again this week, in a wild whipsaw that left market watchers breathless. The selloff has largely been attributed to fears about the Federal Reserve raising interest rates, a move that could hurt corporations’ profits, but much of the trading action was caused by complacency.

After nearly a decade of climbing markets and two years without a correction, Wall Street traders made massive bets that the market would continue quietly climbing. When markets turned volatile, many panicked and dumped stocks, exacerbating the panic selling. An old trader’s adage is “a bull climbs up the stairs and a bear jumps out the window,” a reminder that slow climbs can be followed by rapid drops.

Some of the wildest moves happened outside of normal market hours in New York, with the biggest drop occurring Monday night in the futures markets, which trade almost 24 hours per day. Rather than sell individual stocks or pick apart a portfolio, many investors and traders prefer to sell futures contracts that track an entire stock index, like the NASDQ, S&P 500, or Dow Jones Industrial Average, making those markets especially popular this week.


Corn Prices Sprout

Corn prices have been steadily climbing for the last three weeks, and quietly reached a six-month high on Thursday. Prices have been gaining on hopes for more U.S. corn exports as our biggest competitor, Argentina, struggles with poor weather.

These expectations were supported by Thursday’s USDA report which cut the size of Argentina’s crop by 7% and projected stronger U.S. sales to foreign buyers.

For U.S. farmers sitting on massive stockpiles of unsold corn from last fall, this rally over $3.60 per bushel has been welcome news.


Gasoline Drives Lower

Gasoline futures have fallen for six straight trading sessions, pulling the market near a two-month low. This break should be a welcome relief for drivers who saw prices surge over two-year highs just a few weeks ago; with the recent 25-cent drop, gasoline futures, which represent the cost of fuel without taxes or other expenses like transportation, are trading for $1.70, barely above the average price from 2017.

Gasoline is being pulled lower by record U.S. oil production as new technologies, including fracking, have opened vast supplies that were once uneconomical to drill for.

The increased supply of crude oil is allowing refineries to run near full-capacity and has resulted in climbing stockpiles of gasoline and diesel fuel.

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