After The Close
The major U.S. indexes rose strongly for the second time in as many days, as encouraging quarterly earnings from Corporate America continues to mute recent volatility. Today, the bulls were underpinned by a strong report from Netflix (NFLX). The streaming pioneer announced it added 7.41 million subscribers in the first quarter, well above the 6.5 million estimate. What’s more, like many corporations so far during this still nascent earnings season, the company increased its guidance amidst what is expected to remain a favorable operating environment. Accordingly, the NASDAQ 100 was the best performing large-cap composite today, though the Dow Jones Industrial Average, S&P 500, and small-cap Russell 2000 each logged solid advances.
Besides Netflix, a plethora of other companies impressed with their recent quarterly data. Dow component UnitedHealth Group (UNH – Free UnitedHealth Group Stock Report) delivered solid results, helping to drive its stock more-than 3% higher in the afternoon. And though its fellow blue chippers Goldman Sachs (GS – Free Goldman Sachs Stock Report) and Johnson & Johnson (JNJ – Free Johnson & Johnson Stock Report) beat Wall Street’s forecasts, each shed value today. We believe the former’s slip reflects a prior run up related to regulatory and operational optimism in the banking industry, which was already baked into the quotation level. Overall, advancing shares outnumbered decliners by a roughly 2.5-to-1.0 margin, with technology serving as the biggest driver. Also helping to stoke the bulls’ full-day rally was a positive update from the business beat. More specifically, housing starts bounced back in March, at 1.32 million versus the 1.26 million consensus estimate.
Meanwhile, domestic crude oil ticked $0.30 per-barrel higher. Prices were supported by potential conflicts in the Middle East, including the fallout from more U.S. sanctions on Iran. But the advance follows a modest selloff yesterday, as the likelihood that the United States expands its role in Syria is now viewed as limited, for now. We suspect this push-pull will result in investors taking stock of inventories, specifically at home. Supplies in the Cushing, Oklahoma hub are likely to increase in coming periods, so tomorrow’s release from the Energy Information Administration will be closely watched.
Looking ahead, quarterly earnings will remain the primary factor influencing the market over the near term. That is, while the geopolitical arena and surprises from Washington are always liable to stir the pot, we anticipate updates from Corporate America will headline the next few weeks. Stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
Stocks broke out of the gate strongly yesterday, on optimism about earnings, as first-quarter net reporting season, which commenced last Friday, really will hit its stride this week. On that count,Bank of America (BAC) weighed in with revenues and earnings for the latest period that exceeded expectations. That strong issuance helped to lift the stock market early on following a lower session in Europe to that point and a mixed performance in Asia overnight. In addition to earnings, stocks rose initially on relief that the bombing in Syria over the weekend was contained.
Also of some note to traders, and likewise a positive indication, was an upbeat report on retail sales released before the market opened. On point, sales rose 0.6% in March, principally on strength in auto demand, with that component jumping a full 2.0% last month. Also gaining nicely were sales at furniture outlets, electronics retailers, and health a personal care stores. Sales also were strong at non-store retailers, as shoppers continued to rely heavily on the Internet for their purchases.
Meanwhile, stocks continued to ratchet forward, with the Dow Jones Industrial Average surging ahead by more than 200 points within the first hour of trading, with the blue chips being powered by a stellar gain in shares of Merck (MRK – Free Merck Stock Report). The rally in that stock came after the drug maker released late-stage results showing that a cancer drug it was producing was effective in reducing patient risk of death significantly. Other large-cap drug issues rose in price as well on this news, with the group performing nicely, in general.
The market then continued to hold strong gains into the lunch hour, with the Dow maintaining its 200-point plus advance, as the Street seemingly continued to look past the unsettled political backdrop. The NASDAQ also performed well, gaining better than 40 points in mid-session. Meantime, all 10 of the major equity sectors were moving higher, led by the utilities, even as interest rates moved higher, while gaining stocks led losing issues on the Big Board by almost three to one. It was relief about Syria more than anything, we sense, that fed the rally.
Stocks gained further ion the early afternoon, with the Dow briefly crossing the 300-point advance line. However, the market pulled back modestly, thereafter, but the advance still held above 200 points for the duration of the session. As noted, Merck stayed strong, but a rival, Bristol Myers Squibb (BMY), which also reported success with a cancer drug, did not meet with anywhere near the approval that Merck did. In fact, that stock plunged by some 8%, trading even lower at one point, as it approached a 52-week low.
Overall, the market ended strongly higher, with the Dow adding 213 points and the S&P 500, a 22-point gainer, climbing back into positive territory for the year. The NASDAQ, meantime, rose 50 points, on strength in tech. All in all, it was a stellar day for the bulls.
Looking out now to a new day, we see that stocks were lower across Asia in the overnight hours, while in Europe, the major bourses are trending higher at this hour on optimism about profits. In other categories, oil prices are relatively flat and Treasury yields are higher so far. Finally, our futures now are suggesting a markedly higher opening this morning as earnings continue to pour in.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
