U.S. equities enjoyed their best one-day gain in two months on Tuesday driven by nice gains in energy and a sold rise in job openings. Traders (apparently) shrugged off the reality that ongoing strength in the labor market will only increases the odds of a June rate hike from the Federal Reserve.
In the end, the Dow Jones Industrial Average gained 1.3%, the S&P 500 gained 1.3%, the Nasdaq Composite gained 1.3% (all coincidental, I’m sure), while the Russell 2000 lagged with 0.9% gain. Treasury bonds were little changed, the dollar was mixed, gold was little changed, and oil gained 2.9% to close at $44.69 a barrel. Volume was weak.
Oil was lifted by a number of factors, including the Canadian wildfires near share oil infrastructure, comments from Saudi Aramco’s CEO that demand is increasing in different regions including the United State and India, and a drop in Nigerian production below 1.7 million barrels per day for the first time since 1994.
But crude was hit after the close by a surprise 3.5-million-barrel inventory build vs. 1.3 million last week and estimates for no change. This represented the second straight weekly build and the largest one-week build in four weeks.
Energy stocks led the way with a 1.8% gain while utilities were the laggards, up 0.1%.
Among the day’s biggest single-stock moves?
- SodaStream International Ltd (SODA) gained 23.7% after a big Q1 revenue and earnings beat driven by strong gains in Europe and consolidation of manufacturing and logistics activities.
- Amazon.com, Inc. (AMZN) gained 3.5% on positive comments from Bernstein analysts alongside a price target increase to a Street-high of $1,000-a-share.
- SolarCity Corp (SCTY) dropped 20.8% on a larger-than-expected Q1 loss on light guidance for Q2.
- Gap Inc (GPS) lost 11.5% on a surprise drop in April comp-store sales of 7% vs. expectations for a 1.6% rise. First-quarter earnings per share were guided nearly 30% below the Street estimate as management warned of profit margin headwinds from increased markdowns.
- LendingClub Corp (LC) dropped 11.3% on multiple analyst downgrades following a management shakeup.
- After the close, Walt Disney Co (DIS) reported a surprise top- and bottom-line miss with earnings of $1.36 per share ex-items (vs. $1.40 expected) on revenues of $12.9 billion (vs. $13.3 billion expected). A flat year-over-year result for its media networks — the focus of cord-cutting fears — were a drag on overall results. Shares dropped 6.6% in extended trading.
- Shares of watchmaker Fossil Group Inc (FOSL) plunged 30% in extended trading after reporting a top- and bottom-line miss along with a weaker-than-expected comp-store sales result (down 3% vs. a 0.4% drop expected).
Overall, and in the context of weak personal income and spending data last week, the impression is that the American consumer has snapped their wallet shut in recent months as gasoline prices have recovered. The savings rate has risen. And people are being cautious.
However, it’ll be hard for the Fed, amid job market tightening and progress on inflation, to further delay another interest rate hike as we move into June. Job openings rose to their second-highest level ever in March to 5.8 million from 5.6 million in February. Separately, the Atlanta Fed increased its GDPNow forecast for Q2 growth to 2.2% from 1.7% previously on stronger fixed asset investment growth.
For now, massive technical overhead resistance near Dow 18,000 remains in play as factors including seasonal headwinds, the specter of a June rate hike, and the sure-to-be-contentious presidential election loom.
Breadth remains lackluster as well, with just 65% of the stocks in the New York Stock Exchange above their 50-day moving average vs. a high of 90%-plus back in mid-April.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
