Equities Rise as Earnings Begin with Solid Results from JP Morgan

Friday, April 12, 2019, 12:31 PM, EST

• NASDAQ Composite +0.24% Dow +0.75% S&P 500 +0.43% Russell 2000 +0.18%
• NASDAQ Advancers: 1232 / Decliners: 1047
• Today's Volume (vs. Thursday) +55.30%
• Crude +1.02%,  Gold +0.19%

Market Movers

• In the M&A world, Chevron Corporation agreed to buy Anadarko Petroleum Corporation in a cash and stock deal valued at $33 billion
• JP Morgan Chase reports Q1 EPS $2.65 vs consensus $2.35. Reports Q1: Revenue $29.82B vs consensus $28.44B
• Wells Fargo reports Q1 EPS $1.20 vs consensus $1.11. Reports Q1:Revenue $21.6B vs consensus $20.99B
• Trade data from China showed that exports rose 14.2% from a year earlier in March, against forecasts for a rise  of 8.7% after a drop in February
• March US Import Prices +0.6% vs. consensus +0.4%; Export Prices +0.7% vs. consensus +0.3%. 
• April US Michigan Consumer Sentiment (preliminary) 96.9 vs consensus 98.0

Charlie’s Commentary

Let’s be clear, today was supposed to be all about earnings as investors were collectively holding their breath prior to several mega banks releasing 1st quarter results. While that overall theme remains in focus, two other surprise stories are helping to shape the markets. The first was better than expected export data out of China. Exports jumped by 14.2% in March from a year ago while imports fell 7.6%. China’s upbeat sales abroad is a temporary sign of trade resilience in a global economy that was seen as slumping amid escalating  tensions. In addition, credit growth also grew more than expected. Aggregate financing was 2.86 trillion yuan last month compared to 700 billion yuan in February. This seemed to indicate that the stimulus programs are being effective. This not only put a charge underneath the Asian markets but also bolstered much of Europe. 

The second surprise was the merger announcement that will combine Chevron with Anadarko Petroleum in a cash and stock deal worth $33 billion. In a statement from Chevron’s Chairman Michael Wirth, “This transaction will unlock significant value for shareholders, generating anticipated annual run-rate synergies of approximately $2 billion, and will be accretive to free cash flow and earnings one year after close." The market has largely been void of any merger announcements lately and this mega announcement is an encouraging endorsement for the economy and future deals.

Focusing on the first quarter earnings season, the inaugural two bellwether stocks did not disappoint. You will recall that there was a great deal of trepidation leading up to this earnings season with estimates from Factset predicting a year over year profit short fall in general of 4.2%. Both JP Morgan and Wells Fargo released earnings that were better than consensus estimates in both earnings and profits. JP Morgan’s profits were driven by the impact of higher rates while Well Fargo’s got help from consumer transactions and auto loans. That is a huge relief to a category that has largely underperformed the 1st quarter due to economic slow down fears and a low interest rate environment.

The economic calendar gave us the final inflation indicator for the week in the form of import and export data for the month of March. Import prices rose 0.6% last month, the third consecutive month of increases driven primarily by higher fuel prices and industrial supplies. In the twelve months ending March import prices were unchanged after declining on an annual basis in the three prior months Export prices rose 0.7% in March after rising by the same amount during February. On a year over year basis, export prices rose 0.6% in March after increasing 0.3% in February. Economist point out that when you strip out fuel prices on a 12 month period import prices were down 0.8% and  non agricultural export prices rose a paltry 1.0%. This indicates no real inflation pressure and continues to validate the Fed’s no rate increase stance. The final economic report we had for the week was the April University of Michigan consumer confidence reading, which while declining slightly to 96.9 from the prior reading of 98.4, the level of the Index during the past 30 months was higher than any other time since the period 1997 – 2000.

Crude prices are rebounding today, pushing back up against five month highs sparked by renewed M&A in the space indicating higher oil prices are not so high to make future deals unattractive. In addition the involuntary supply cuts from Iran, Libya and Venezuela and the production reduction plan from OPEC continue to support prices going forward. Gold seems set for its first weekly increase in three weeks supported by lingering concerns over global economic growth and trade tensions that continue to pressure the dollar.

Well that’s a wrap for the week. If we can hold these gains the broad based indexes should finish in positive territory and this would be the third consecutive week of gains for the S&P 500. Finally a special Happy Birthday shout out to our friend and fellow MID’er Chris Dearborn who officially begins play on the “back nine” today! Have a great weekend!

Sector Recap

Brian’s Technical Take

The last five years has been feast or famine for the energy sector and most of the time it has been the latter.   

Compared to the other ten sectors, energy was the worst performing sector in three of the prior five years for an average annual decline of 15.7%.  The fourth year (2017) it was the second worst performing sector with a modest 1% decline.  The lone bright spot followed a 49% decline over 18 months into the lows of January 2016.  From there energy rebounded sharply to finish as 2016’s top performing sector with a total return of 27.4%.      

This year the pendulum is swinging back and energy ranks as the fourth top performing sector with the S&P 500 energy index +18.5% YTD.  If today’s M&A deal is a sign of things to come, energy may be able to improve on that ranking.  The bulk of this year’s gains took place in January and since then it’s been a slow drift higher.  

Over the last seven plus weeks dating back to February 20th, the energy index has gained a modest 2.2%  as other cyclicals like technology (+10%), discretionary (+8%) , and Communications (+7%) far outperformed.  The 496 – 500 range has been a sticky resistance zone which the energy index has thus far been unable to break away from.  The index first proved sensitive to this price range during the sharp downtrend in November and December.  And now just above is the declining 200-day sma, now 507.68, which offers another layer of increased overhead supply.  

Despite today’s announced deal, the energy index has given back nearly all of its early gains to form a “gravestone doji” pattern on the daily period frame.  This could easily change by the end of today’s session and even not the pattern isn’t too concerning as it comes after four days of sideways consolidation.  The weekly candlestick however has carved out a “doji” reversal right through the 40-week moving average.  This may suggest the energy index has some more consolation ahead of itself over the coming weeks.      

While there are mixed signals over various time frames, the overall technical setup, call it over the intermediate term, appears constructive.  The 1.1% gain over the last five months looks like one large bottoming pattern which has been coiling in a narrowing range over the last four weeks.  A move above the 200-day sma would be the trigger for a “breakout” which I expect would be accompanied with accelerating upside momentum.  This year’s two biggest drawdowns bottomed at the rising 50-day sma, now 485.64,  which new longs can use as a clearly defined level to measure risk.  

Earlier this week in our healthcare piece we noted one hallmark of all bull markets is sector rotation, aka “lock and roll”, whereby investors lock in gains in one group and roll into others.  Along with healthcare energy could be setting up to be on the receiving end of those flows.

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.