U.S. equities finished with fractional gains on Wednesday as investors looked ahead to the OPEC oil cartel meeting on Thursday and the non-farm payroll report on Friday, which will impact the odds of a Federal Reserve interest rate hike later this month.
In the end, the Dow Jones Industrial Average gained a touch, the S&P 500 wafted 0.1%, the Nasdaq Composite added 0.1% and the Russell 2000 finished the day with a 0.7% gain.
Treasury bonds were mixed, the dollar was weaker, gold lost 0.2% and crude oil gained 0.2% before sliding after the close as mid-day chatter about a possible lowering of OPEC’s official production ceiling was dismissed in the minutes after the closing bell.
The WSJ story reported that Saudi Arabia was considering a production ceiling proposal, something that would represent a massive shift from its aggressive market share strategy and muscular stance against Iran’s demands to set any production deal at its pre-sanctions output level.
We’ll know more tomorrow when OPEC meets in Vienna. On Tuesday, UAE’s oil minister said he is happy with the current price of oil and that the market is correcting itself. And after the close, Iran’s oil minister said that an OPEC production ceiling has no benefit for Iran and that an agreement cannot be reached at this meeting.
Defensive consumer staples stocks led the way with a 0.7% gain while telecoms were the laggards, down 1%.
Auto stocks were hit, with Ford Motor Company (NYSE:F) dropping 2.8% after reporting a 5% year-over-year drop in sales to 235k units. Demand for trucks and SUVs is strong, however, although this could soon be impacted by a worrisome decline in auto loan credit quality and a near 80% rebound in wholesale gasoline prices since February.
Edge Pro subscribers are enjoying a 10% gain in their June $13 F puts.
Alibaba Group Holding Ltd (NYSE:BABA) lost 6.5% after Softbank, its largest shareholder, announced it would sell nearly $8 billion of its shares. BABA will reportedly buy $2 billion of these, with the rest hitting the open market.
Trading in recent weeks has settled into a big of a snooze fest, technical in nature but largely range bound as a three-month consolidation pattern — capping a three-year sideways crawl — continues.
Traders are balancing negatives like disappointing earnings, trying valuations and the risk of higher interest rates against the rebound in energy prices, aggressive corporate share buybacks and a strong short-squeeze dynamic over the past week.
The situation is unlikely to be resolved until July, with the futures market assigning 45% odds the Fed will hike rates then versus 24% in June and 13% in September. Friday’s jobs number will likely bolster this prediction: Analysts are looking for another 158k jobs created pushing the unemployment rate down to 4.9%.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
