The Dow Jones Cools off as Oil Fears Heat Up

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Tuesday's drag on stocks was due to crude oil, after Saudi Arabia's oil minister reiterated that any production deal would involve a freeze at current supply levels, not a cut to drop output.

He also thundered that while the Kingdom wasn't pursuing a market share strategy (yeah, right) high-cost producers (looking at you, U.S. shale men) must lower costs or liquidate. The Iranians remain upset about the idea, since they are ramping up production to pre-sanctions levels.

Some hawkish commentary out of the Federal Reserve didn't help either.

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In the end, the Dow Jones Industrial Average lost 1.1%, the S&P 500 dropped 1.3%, the Nasdaq Composite shed 1.5% and the Russell 2000 ended the day 0.9% lower. Elsewhere, treasury bonds strengthened, the dollar was mixed, gold gained 1.3% and crude oil lost 4.6% to close at $31.85 a barrel.

Defensive utility stocks led the way with a 0.1% gain. Energy (surprise surprise) was the laggard, down 3.2%. Macy's, Inc. (NYSE: M ) gained 3% on a Q4 earnings-per-share beat, thanks to a comp-store sales decline that wasn't as bad as expected .

Wearables icon Fitbit Inc (NYSE: FIT ) was slammed 20.8% after reporting 8.2 million devices sold in the fourth quarter (vs. 7.5 million expected) but disappointing on Q1 revenue and earnings guidance on production transition headwinds. I guess the stock price won't hit its distance traveled goal for the day.

The recent hotness in the materials sector turned cold Tuesday, with Freeport-McMoRan Inc (NYSE: FCX ) down 8.7% after being downgraded to sell by analysts at Citi on the potential drags from planned asset sales amid tough financing conductions. United States Steel Corporation (NYSE: X ) lost 5.2% after being downgraded by Cowen on limited upside for U.S. steel prices and a poor production utilization rate.

Despite the skid, I still think materials and mining stocks are set to shine in the weeks to come.

Just look at the way gold and silver miners have been continuing their upward launch trajectories. Barrick Gold Corporation (USA) (NYSE: ABX ) is now up more than 80% for Edge subscribers since first recommended back in November. The materials sector overall should continue to benefit from attractive valuations, a looming inflation turnaround and growing calls for more monetary policy accommodation by the major central banks.

Speaking of the devil, Kansas City Fed President Esther George sounded a hawkish note today by saying the economic outlook hasn't fundamentally shifted from the decision in December to raise interest rates by 0.25% for the first time since 2006 (alongside a forecast for another four rate hikes in 2016). She added that a rate hike should be discussed at the upcoming March policy meeting.

This flies in the face of a growing expectation in the futures market that not only should the Fed not hike in March - but it shouldn't hike at all until 2017. Consumers seem to be backing this up as well: U.S. consumer confidence fell to its lowest level in seven months in February, missing expectations badly.

George is a known hawk - it'll be hard for her to overcome the growing fear among the Fed policy doves that recent market volatility and ongoing weakness in crude oil will have lasting effects on financial conditions and inflation remaining below target.

A rate hike delay will further bolster stocks with material names (especially those in the gold and silver business) set to continue their recent run of outperformance.

Anthony Mirhaydari is founder of theEdgeandEdge Proinvestment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.

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The post The Dow Jones Cools off as Oil Fears Heat Up appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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