Market slips on oil

04/27/20
  • Down week for broad market, but small-caps post gains
  • Energy sector leads S&P 500 despite oil market gyrations
  • This week: Get ready—GDP, FOMC, and big-time earnings

Heading into the meat of earnings season, stocks are coming off their first down week since April 3, as historic oil-market volatility and disappointment about a hoped-for coronavirus treatment combined to thwart the US market’s bid for a third-straight up week.

Bulls will probably take it, though—it was the smallest down week since February for the S&P 500 (SPX), which ended the week not too far below April 17’s five-week high after a strong rally on Friday:

Chart 1: S&P 500 (SPX), 3/4/20–4/24/20. S&P 500 (SPX) price chart. Bumps in the road.

Source: Power E*TRADE


The headline: Stocks rally stalls as oil market implodes and reloads.

The fine print: One of the ironies of last week’s crude oil collapse—expiring futures prices briefly went negative amid a storage crunch—was that many energy stocks enjoyed big rallies, gaining much more when oil recovered than they lost when it cratered on Monday and Tuesday. Energy was the only S&P 500 sector to finish in the green last week.

The move: -10.2%, how much Gilead Sciences (GILD) dropped in roughly 40 minutes on Thursday when news broke that Remdesivir, the drug many hoped would be a viable coronavirus treatment, performed poorly in clinical trials.1

The quote: “As economic output contracts sharply, fiscal outlays surge, and central bank balance sheets double, fiat currencies could come under pressure. Investors will aim for gold.” Bank of America analysts, who upped their 18-month target for gold to $3,000/ounce in a report titled “The Fed can’t print gold.”2

The numbers: -14.4%, the decline in durable goods orders in March—the second-biggest drop in history. Also, 4.43 million more Americans filed for unemployment, bringing the five-week total to 26.45 million. On the upside, new jobless claims have declined for two consecutive weeks.

The scorecard: Small-cap stocks still trail the pack for the year, but last week the Russell 2000 (RUT) was the only major index to notch a gain:

US stock index performance table for week ending 4/24/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector roundup: The strongest S&P 500 sectors last week were energy (+1.7%), communication services (-0.04%), and consumer discretionary (-0.2%). The weakest sectors were real estate (-4.4%), utilities (-3.8%), and consumer staples (-3.2%).

Highlight reel: After taking steps to discourage a potential takeover because of its low stock price,3 Chesapeake Energy (CHK) jumped 24% on Tuesday, 14% on Wednesday, 36% on Thursday and +45% on Friday—a one-week gain of 176% that pushed the stock from $14.45 to $39.94. On the downside, on Thursday Netgear (NTGR) fell 17% to $21.66 and Invesco (IVZ) dropped 21% to $7.24.

Futures action: US oil prices collapsed in historic fashion early last week, as May WTI crude oil futures (CLK0) traded as low as -$14.30/barrel before expiring on Tuesday. Lack of demand led to an oil glut that temporarily overwhelmed storage facilities, leaving producers with nowhere to park their supplies (see “Storage wars”). But June WTI crude futures (CLM0), which on Tuesday fell nearly 70% to $6.50, rebounded roughly 163% the remainder of the week to close Friday above $17.

June gold (GCM0) gained $36.80 (2.2%) for the week, closing Friday at $1,735.60/ounce after pulling back to $1,666.20 last Tuesday.

Last week's biggest futures up moves: May hogs (HEK0) +38.5%, May rice (RRK0) +14.6%, and May VIX (VXK0) +7%. Last week's biggest futures down moves: June WTI crude oil (CLM0) -31.5%, May ULSD NY Harbor (HOK0) -29%, and June Brent crude oil (BM0) -22.3%.

Coming this week

Buckle up, nearly a thousand companies are scheduled to release their numbers this week, including some of the market’s heaviest hitters. The following list is only a sample:

●Monday: Keurig Dr Pepper (KDP), F5 Networks (FFIV), PPG Industries (PPG), NXP Semiconductors (NXPI)

●Tuesday: Alphabet (GOOGL), Southwest Airlines (LUV), Advanced Micro Devices (AMD), Rockwell Automation (ROK), Merck (MRK), Ford (F), Starbucks (SBUX), Caterpillar (CAT), Pfizer (PFE), Paycom Software (PAYC), PepsiCo (PEP), United Parcel Service (UPS)

●Wednesday: Archer Daniels Midland (ADM), Yum! Brands (YUM), Boeing (BA), General Electric (GE), General Dynamics (GD), Microsoft (MSFT), Northrop Grumman (NOC), eBay (EBAY), Facebook (FB), Mastercard (MA), Qualcomm (QCOM), Tesla (TSLA), Spotify (SPOT)

●Thursday: Amazon.com (AMZN), Apple (AAPL), Amgen (AMGN), Dunkin' Brands (DNKN), Baxter (BAX), Molson Coors (TAP), McDonald's (MCD), Kellogg (K), ConocoPhillips (COP), Gilead Sciences (GILD), Visa (V), Twitter (TWTR)

●Friday: Phillips 66 (PSX), AbbVie (ABBV), Exxon Mobil (XOM), Colgate-Palmolive (CL), Chevron (CVX)

It’s pretty much wall-to-wall action on the economic calendar, too, with GDP, an FOMC announcement, and manufacturing data among the highlights:

●Monday: Dallas Fed Manufacturing Business Index

●Tuesday: Wholesale Inventories, Trade Balance, S&P Case-Shiller Home Price Index, Consumer Confidence

●Wednesday: GDP, Pending Home Sales, FOMC announcement

●Thursday: Challenger Job Cuts, Jobless Claims, Personal Consumption Expenditures (core inflation), Personal Income and Spending, Employment Cost Index, Chicago Purchasing Managers' Index (PMI)

●Friday: ISM Manufacturing Index, Markit Manufacturing PMI, Construction Spending, Vehicle Sales

Go to the E*TRADE market calendar (login required) for an up-to-date earnings schedule and a complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs and economic report times each morning.

Market mover update: After a 4.4% rally on Thursday, Williams-Sonoma (WSM) added another 5.7% on Friday (see “Cooking up a trade”). Constellation Brands (STZ) closed out last week with its strongest up day (+3.8%) since it broke out of the downside of its recent range (see “Bulls, bears, and booze”). LivePerson (LPSN) rallied more than 2% on Friday, breaching the top of its consolidation (see “Right place at the right time?”). The company is currently scheduled to release earnings a week from tomorrow (May 5).

 

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1 Barron’s. Stocks Give Up Gains After Negative Report on Coronavirus Drug. 4/23/20.

2 Bloomberg.com. Gold to Reach $3,000—50% Above Its Record, Bank of America Says. 4/21/20.

3 TheStreet.com. Chesapeake Energy Extends Gains as Oil Recovers, Poison Pill Adopted. 4/24/20.

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