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Stocks - Dow Cuts Gains as Energy Falls Amid Ugly Reversal in Oil

By Yasin Ebrahim – Wall Street cut gains onThursday, as a sharp reversal in oil prices pressured energy stocks, offsetting fresh measures from the Federal Reserve's to support the economy.

The Dow Jones Industrial Average rose 0.79%, or 185 points, the S&P 500 added 0.83%, while the Nasdaq Composite gained 0.14%.

Energy, meanwhile, fell 4.05%, paced by a sharp reversal in oil prices as investors awaited further details from the virtual meeting between OPEC and its allies.

OPEC reportedly agreed in principle to cut output by 10 million barrels per day for May to June, and will look to other nations to cut output by 5 million bpd, Reuters reported, citing sources.

WTI futures crude settled at $22.76, down 9.29% after surging more than 12% intraday.

The move lower in oil soured earlier investor optimism, which had followed bullish comments from Fed Chairman Jay Powell.  

In a sign that the Fed's bazooka is at little risk of running out of ammo, Powell said the economy would have to on be on a solid footing before the Fed pulls back and expected a "robust" recovery to follow once the pandemic was under control.

"We will continue to use these powers forcefully, proactively and aggressively until we are confident that we are solidly on the road to recovery," Powell said.

"There is every reason to believe that the economic rebound, when it comes, can be robust," the Fed chairman added.

The optimistic tone arrived as the U.S. central bank pledged $2.3 trillion to create new loan programs and bolster its current measures, including $600 billion for its Main Street Lending Fund to support for small and medium sized businesses.  

The central bank also expanded its corporate credit lending facility by $850 billion and for the first time ever offered up to $500 billion in loans to states and municipalities. The Fed will also be able to buy junk corporate debt and high-yield ETFs for the first time, which also helped segments of the market.

The move overshadowed data showing initial U.S. jobless claims fell 6.6 million for the week ended April 4.

Financials, mostly banks, rose sharply on the Fed's move, with Wells Fargo (NYSE:WFC) up 8% JPMorgan (NYSE:JPM) up 7%, and Bank of America (NYSE:BAC) up 4.5%. Powell also said he saw no reason for banks to cut dividends as they are well-capitalized.

With the unprecedented action from the Federal Reserve expected to exacerbate the hunt for yield, utilities – often used as a bond proxy that does well in low interest rate environments – also led the broader move higher, up 6%.

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