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An Apple a day…. Markets rallied on Friday led by technology shares… led by Apple, after a positive earnings surprise. Consumers are starting to spend money but lack of a new stimulus bill may curb a recovery.
N O T E W O R T H Y
Looks about right. Friday’s market news cycle pretty much summed up the health of corporate America. Well, let’s just say that it highlighted the extreme boundaries of it. Why not, as we seem to be all about extreme boundaries these days. On the one hand we have big oil as defined by behemoths Exxon Mobil and Chevron. We already know that their story is one of recently hard times. Energy was flying high coming into 2015 with WTI crude oil trading above $80/ barrel. US Shale production was booming and played a big part in the recovery of the labor market, post Financial Crisis. The boom for frackers meant more supply as well as a pricing power shift away from OPEC. More supply meant slumping prices and oil fell by as much as -25% in 2015. Though the price of crude recovered somewhat by late 2018, it was never able to return to its pre-2015 level. Crude spent 2019 in a range between 50 and 60 and was ultimately knocked from its perch when the pandemic struck causing global demand to crater. Companies who rely on crude oil price stability suffered along with the commodity. Of course, some performed better than others, but for the most part, the energy sector has struggled along with the commodity over the past several years. That hasn’t stopped investors from buying the stocks, however. Energy stocks’ high yields make them attractive to income investors who have been starved by the low rates offered by bonds. Unfortunately, their high yields came at a high price as energy stocks have suffered significant losses over the past 12 months… and unfortunately the pain does not look like it will be subsiding any time soon. Pension funds and institutional buyers who were once big investors in energy have begun to shun and divest investments in favor of green energy for not only to meet ESG policy directives, but also their promise for the future. Less institutional demand for a sector does not help an already weak sector. Then there is another thing… it is not there yet, but Americans are becoming less reliant on fossil fuel. Sure it is in the early stages, but a shift is occurring. Further evidence of the shift can be seen in this weekend’s announcement, WHILE YOU SLEPT, that Marathon Petroleum agreed to sell all of its Speedway gas stations to the owners of 7-eleven for $21 billion as American gasoline consumption has been diminishing for the past 20 years. While fossil-based energy is in no way going to disappear, the economy's reliance in the sector will certainly diminish if not change in the years ahead. The rise of the pandemic has unfortunately put the sector’s woes in the spotlight. Friday’s earnings calendar included releases by Exxon Mobile and Chevron which missed estimates by -12.40% and -75.8% respectively. While the surprise was probably not surprising, the bad results caused the S&P500 energy sector to be the worst performing sector in Friday’s session. On the other extreme was technology shares which soared on Friday after a number of strong beats announced after Thursday’s close. Technology has been a high flyer throughout the pandemic as investors perceive them to be immune to economic cycles. Results from the second quarter have shown that technology, in fact, can continue to grow revenues and income during all economic conditions. Apple took the top spot on Friday, rising +10.5% after beating Wall Street estimates by +24.72%, despite being impaired by store shutterings across the globe. So here we are just a little past the halfway mark in 2020 and Information Technology stocks have added +20.5% year to date while Energy has lost -40.39%. Yes, the moves have been accentuated by a pandemic, but the relative performance of the two very different sectors shows signs of persisting beyond the crisis.
THE MARKETS
Stocks traded up on Friday as benign economic data combined with mixed earnings results. Technology shares led the charge while energy gave up ground. The S&P500 rose by +0.77%, the Dow Jones Industrial Average climbed by +0.44%, the Russell 2000 Index slipped by -0.98%, and the Nasdaq Composite jumped by +1.49%. Bonds rose and 10-year treasury yields gave up -2 basis points to 0.52%. Gold advanced by +0.98% to $1975.86, another new all-time high.
NXT UP
- Markit Manufacturing PMI (July) is expected to be 51.3 in line with prior estimates, while ISM Manufacturing (July) is expected to have risen to 53.6 from the prior month’s 52.6 reading.
- Fed speakers include Bullard, Barkin and Evans.
- This morning, Clorox, Marathon Petroleum, Global Payments, McKesson, and Tyson Foods beat estimates. After the bell earnings include Diamondback Energy, KLA, Chegg, Virgin Galactic, American International Group, Tenet Healthcare, Ingersoll Rand, and Take-Two Interactive.
- The week ahead has lots more on the earnings front in addition to manufacturing/services PMIs, Construction Spending, Factory Orders, Durable Goods Orders, and the monthly employment numbers. Please refer to the attached earnings and economic calendars for details.
Please call if you have any questions.
Best regards,
Mark
service@siebert.com
Siebert Financial (800)872-0444