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Salesforce replaces Exxon on the Dow … the fall of the world’s biggest company … gold takes a long-awaited breather … a Dark Pool winner
“Dow boots Exxon Mobil from blue chip club in stunning ‘out with energy and in with cloud’ shake-up.”
We couldn’t have written a better headline than that one from the Dallas Morning News on Monday.
Two days ago, we learned that Exxon, Pfizer, and Raytheon are being dropped from the Dow Jones Industrial Average.
And who’s taking their places?
Salesforce.com, Amgen, and Honeywell.
If you’re not as familiar with these new companies, here’s the quick bottom-line:
- Salesforce.com — tech (cloud and software)
- Amgen — tech (specifically, biotech)
- Honeywell — tech (as well as manufacturing)
We basically have tech replacing big oil, pharmaceuticals, and defense.
Behind the shakeup is Apple’s 1-for-4 stock split. This will effectively lower the Dow’s tech exposure (which is based on stock price rather than market cap). So, the three tech newbies are intended to help offset that reduction.
From the Dallas Morning News:
The latest reshuffling is more testament to the ascent of technology companies, a trend amplified by this year’s COVID-19 lockdowns.
While the Dow average is still 4.2% off its February record, the tech-heavy Nasdaq 100 is almost 20% above the pre-pandemic all-time high.
***That will sound familiar to Eric Fry’s subscribers, as it’s the embodiment of the “Technochasm”
That’s Eric’s name for the growing performance-divide between companies that use and adapt to new technologies (and prosper) versus those companies that cling to old ways (and suffer).
But Exxon’s booting from the Dow is truly symbolic.
It’s also testament to the immense power of the Technochasm.
You see, for decades, Exxon was the crown jewel of countless “mom ‘n pop” portfolios. From 1990 through 2010, Exxon returned 635% for its investors. Over that same period, the S&P returned just 255%.
As recently as 10 years ago, Exxon was the world’s biggest company. In 2011 it held that title, being valued at just over $400 billion (before being upended by Apple).
But over the last decade, the combination of poor management decisions, declining oil prices, and the growth of renewable energy has dealt successive blows to the company … and its shareholders.
Today, Exxon’s market value has eroded from that $400-billion mark to less than $175 billion.
Meanwhile, over the same period, we’ve witnessed the rise of tech — and Salesforce.com is one of the most notable poster-boys for this.
In fact, as I write Wednesday morning, the stock is surging 27% based on blowout earnings numbers. The company reported its first-ever quarter of generating more than $5 billion in revenue.
Below, we compare Exxon’s market performance with that of Salesforce since March 2009. The disparity is jaw-dropping.
While Salesforce has been one of the best-performing stocks in the market, soaring more than 38-times over, Exxon’s 11-year performance comes in at -11.83%.
Talk about a massive opportunity cost for big oil investors …
***Eric has been warning about the looming demise of yesterday’s market leaders for many months now
Today there are so many ticking time bombs in so many people’s portfolios, because of bad business structures … heavy debt loads … and completely outdated business models that are being disrupted by fast-moving and creative, technological startups.
It’s interesting to evaluate Exxon through Eric’s “heavy debt load” lens.
Below, we look at Exxon’s long-term debt chart, as well as its debt-to-equity ratio, since 2009.
As you’ll see, both metrics have surged from where they were 11 years ago.
While it’s sad to see the fall of this market veteran, it’s critical you don’t overlook its significance.
The Technochasm isn’t done reshaping the markets — and by extension, the portfolios of many unsuspecting investors.
Over this decade, it will continue to drive massive change in the markets, generating and destroying investment wealth. To learn more from Eric about how to be on the right side of this techno-divide, click here.
***Meanwhile, gold is taking a long-awaited breather
It was in our August 7th Digest that we suggested readers be ready for a pullback in gold.
From that issue:
While it’s highly unlikely gold and silver are anywhere near peaking, they’re likely due for a breather — whether today’s pullback is the beginning of that, or just a mini-pause is unclear.
Either way, the precious metals have been surging at a breakneck pace since mid-July. While they’ll likely to see higher prices in the months and quarters to come, it should surprise no one if they pull back and trade sideways for a period of consolidation.
Though we had no way of knowing at the time, that commentary marked the beginning of gold’s pullback from its recent peak and all-time-high of $2074.
As you can see below, the precious metal has fallen 7% since its early-August high.
***If Stefanie Kammerman is right, the correction has more room to go
For newer Digest readers, Stefanie is the latest addition to our portfolio of InvestorPlace analysts.
In her newsletter, Dark Pool Trader, she tracks the private stock exchanges where the Wall Street “big boys” place their trades.
These exchanges allow institutions and huge money managers to buy and sell massive blocks of shares without running the risk that other traders will see their hand.
This “camouflage” is necessary since this buying/selling pressure can easily push a stock’s price around by 5% – 10% in the span of a week.
But by monitoring the activity of these giant institutions on the Dark Pool exchanges, Stefanie gives her subscribers a shot at riding along with that momentum, potentially to the tune of 50%+ profits in a matter of just weeks, sometimes only days.
In her most recent Dark Pool Trader update, Stefanie commented on the potential for more weakness in gold:
Fundamentally, when the dollar goes down, gold goes up and vice versa.
Take a look at the weekly chart of gold futures (GC_F). I have circled a high-volume doji Japanese candle. A doji candle is a neutral candle. It does not give us a bias. It is an indecision candle.
The bulls and the bears duked it out all week long, and nobody has won yet.
The high volume usually indicates that whoever wins the battle over the next few weeks will have a big win.
Volume is the gasoline that will drive gold up or down from here.
If the dollar closes below that hammer candle, the bulls should win this battle.
If the dollar closes above that hammer candle and rises, the bears will likely win.
For Stefanie’s money, she’s betting on the bears after seeing heavy Dark Pool prints in the gold sector over the past few weeks.
She just recommended subscribers open a bearish trade on a major gold miner. We’ll keep you updated on how it turns out.
Before we sign off, a congratulations to Stefanie’s subscribers for last week’s 77% winner on Charles Schwab. She has several open trades as I write, so we’ll check back in the coming days/weeks to see how they turn out.
In the meantime, if you’d like to learn more about how Dark Pool trades work, click here.
Summing up, the Technochasm continues to dethrone yesterday’s market leaders … and the long-awaited gold breather is here. We’ll keep you up to speed as these dynamics continue playing out.
Have a good evening,
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.