Equities Mixed as Markets Digest Earnings
Wednesday, April 24, 2019, 12:31 PM, EST
- NASDAQ Composite -0.05% Dow -0.10% S&P 500 -0.11% Russell 2000 +0.36%
- NASDAQ Advancers: 1213 / Decliners: 1074
- Market Volume (First Hour)+1.1%
- WTI Crude: -0.7%, Gold +0.5%, 10yr Treasury 2.5235%
Market Movers
- MBA Mortgage Applications fell 7.3% for the week
- Crude Inventories rose more than forecast
- Occidental makes a competing offer for Anadarko
Steve’s Commentary
Following record closes for the Nasdaq Composite and the S&P 500, not surprisingly the market opened slightly lower this morning. At midday the Nasdaq, S&P and Dow are near unchanged levels. Yesterday’s market saw the Russell 2000 outperform with over 80% of its member stocks close higher, and that trend remains in play today. Volumes were about 5% below average yesterday, but lower volumes tend to accompany lower volatility markets at or near record levels.
For the year, the Nasdaq Composite has already gained 22% and it is just over 17% for the SPX, and that raised questions regarding the rally’s sustainability. After all, if gains were to continue unabated through year’s end the Nasdaq would see a 94% gain; that seems rather unlikely even in the best of circumstances. The forward PE on the S&P 500 stands at 17.7 while the historical average is around 15-16, and with that the term ‘overbought’ is getting tossed around. Analysts at Morgan Stanley write that rich valuations could shift investors away from the winners toward the neglected parts of the market, and yesterday we did see that to some degree as beaten up sectors Healthcare and REITs were among the top performers. On the other hand, the surge in growth stocks suggest investors are not too worried about a looming recession.
Earnings and corporate news are the main driver of the markets once again. Boeing trades 1.7% higher in a sigh of relief after reporting that it missing top and bottom lines, suspended guidance and paused its share repurchase program; apparently investors were fearing worse. Caterpillar is down 3% after commenting on its that the firm could lose market share in China this year due to ‘aggressive pricing from the competition; weaker margins also a factor. Snap beat on top & bottom lines but trades 5% lower; that stock has already gained over 100% this year so some ‘sell on the news’ profit-taking is taking place. Domino's Pizza (+9%), eBay (+5%), Norfolk Southern +3.6% iRobot (-20%), and AT&T (-4%) are just a few of the names that reported earnings today.
In the M&A world, Anadarko jumps over 11% after Occidental submits a bid of $76 in cash and stock, easily topping Chevron’s $65 cash & stock offer. Both Occidental (-3%) and Chevron (-2%) trade lower.
Over in commodities, the DOE reported a larger than expected crude oil inventory build of about 5.5m barrels, but gasoline and distillate stockpiles declined. WTI is off about 0.7% following the report. Echoing comments earlier in the week from Goldman, in an interview International Energy Agency (IEA) Executive Director Fatih Birol says there is plenty of spare global capacity and inventories above long-term averages, both of which should keep prices in check. He goes on to say that instead of trying to manage the oil markets, OPEC might be better off focusing on diversifying their economies away from oil dependence.
The sectors are mixed with REITs and Utilities leading with gains of 0.7% and 0.6% respectively. At the other end of the spectrum is Energy with a 1% decline; the sector has gained nearly 28% since the late-December lows but the S&P Energy index has stalled after reaching it 200-day moving average. The Healthcare sector is seeing some weakness at the top end with the S&P Healthcare Index off 0.1% while its R2K counterpart is up 0.2%.
Brian’s Technical Take
It is a nice day in the Northeast and Brian had the foresight to schedule a vacation day, so I am filling in as the technical guru. The chart below reflects the S&P 500 index over the past year and in the lower section is the Relative Strength Indicator (RSI). The RSI shows the S&P index is entering overbought territory, but that doesn't necessarily mean a pullback is coming. Overbought conditions were registered several times in 2016 and 2017 without a subsequent decline. The RSI chart for Nasdaq Composite shows a similar state and the Dow is nearing overbought. However the Russell 2000 has a ways to go before hitting overbought status, and that is one reason the R2K index is outperforming in recent days.
Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.