What a beautiful day it was on the market yesterday! It was almost like Tuesday had never happened, fading or receding into distant memory. And what was the driver of yesterday’s gains?! No other than the energy sector after oil prices rebounded on the heels of a critical OPEC announcement delineating that production cuts will be adhered to. Over and beyond that, the catalyst for Tuesday’s losses, Italy’s political uncertainty, seemed to lose its punch, having little effect on U.S. markets. The S&P 500 regained all of Tuesday’s losses.
Energy companies, of course, were the day’s biggest winners, Exxon Mobil (XOM) soaring 3.93% and Chevron (CVX) surging 3.11%. The duo were the best performers on the blue-chip Dow after OPEC announced that production cuts will go the distance – and last until at least the end of the year.
It almost seems like the news was engineered! After fear was spread that Russia would be ramping up production, OPEC and nonmembers, led by Russia, announced that that would not be the case. Fear had grown given concern that production would increase after output losses were seen from Iran and Venezuela. As for Italy, what’s news?! A coalition could be on the way, even though the last iteration was blocked last week.
One of the big movers in yesterday’s trading was Salesforce.com (CRM). Its CEO, Marc Benioff said this past week, the economy is “really ripping.” The company’s Q1 2018 revenue rose 25%, and is now a tad above $3 billion. Its revenue numbers beat the consensus by some 2%, the drivers of growth including cloud offerings, sale optimization software. The company also signed up a large client in the U.S. Dept. of Agriculture, with its international growth also showing robustness. CRM soared 1.9% yesterday. With the company’s client base being sticky, i.e. devoted and unlikely to drop it for a competitor, the company has returned beautifully. In the words of Canaccord Genuity’s Richard Davis: “Think of Salesforce like a car without the options.” Perhaps comparable to the service offerings of a company like Apple (AAPL), Davis added: “You can add the power steering and the better brakes, which in this case might be things like tax accounting or foreign-exchange features specific to your business.”
And to make things even nicer, Morgan Stanley is bullish on cloud capital spending, raising its forecasted growth for this year from 23% to 29%. Morgan Stanley has been on the money so far in terms of its projections vis a vis cloud computing, noting that it warrants higher valuations given its ability to upend traditional industries. Just look at Amazon (AMZN), a company that the brokerage has pushed – and watched – as it continues its meteoric rise!
Economic Diary: At 8:30, be primed for jobless claims and the Personal Income and Outlays report. Then at 9:45, the Chicago PMI will be released, followed by Pending Home Sales at 10:00. At 11:00, the EIA Petroleum Status report will be released, commanding a lot of market attention given recent volatility in crude and energy stocks. Thereafter, keep your eyes peeled at 16:30 for the Fed Balance Sheet and the Money Supply report. A number of Fed speeches will be interspersed throughout the day.
Robert W. Baird & Co.’s Michael Antonelli stated, “The fact that the market is shrugging off Italy’s political drama suggests that maybe it was a crowded trade that was being unwound and not something more serious.” As for fragility and the tenuous nature of the market’s recent gains, he added, “Anything coming from the left field can shatter markets nowadays, so we have to brace for a long summer grind.”
Market Summary: The market rebounded strongly, on the heels of Tuesday’s losses. The blue-chip Dow tacked on 1.26%, the S&P 500 gaining 0.89%. The NASDAQ took the pot with gains of 1.27%. The energy sector was the best-performing sector, with gains of 3.1%. And what did we say yesterday about the financial sector: look for a correction – and that’s exactly what we got! Financials rose 1.9%, followed by health care which was up 1.4% on the day.
How about the Russell 2000? The small-cap index hit an all-time high, surging 1.4% on the day. Volatility, rather than rearing its ugly head, was on the downtick, the Cboe Volatility Index (VIX) falling 13% after having soaring 29% on Tuesday.
Michael Kors Holdings (KORS) was most certainly in the spotlight after tumbling 11% on growing concerns that the fashion house could see weak sales. A big winner was Dick’s Sporting Goods (DKS), which saw the opposite fate of KORS. DKS skyrocketed 26%, the company realizing the trifecta: a revenue beat, earnings beat, and higher guidance.
As for GDP numbers, the first revision pointed to slightly slower growth than earlier thought, given a slower buildup in inventories. Annualized GDP was cut from 2.3% to 2.2%. Also on the economic front, the ADP report featured 178,000 new private sector higher; April’s number, though, was lowered 41,000 to 163,000.
Hot Stocks: X, KEYS, IPGP, TAHO, PEG, EXEL, ABBV, P, KORS
Have a great trading day!