U.S. equities bounced around the unchanged line on Wednesday as investors directed their attention elsewhere amid evidence a “risk off” trade is picking up some steam. Crude oil, too, is weak in the knees amid some very bearish inventory data. Elsewhere, Treasury bonds are perking up and gold continues to firm.
On the political front, sentiment keep shifting away from a rosy-eyed look at President Trump’s plans for tax and healthcare reform to possible hurdles such as getting legislation through Congress and possible impacts to the fiscal debt and the national debt.
In the end, the Dow Jones Industrial Average lost 0.2%, the S&P 500 gained 0.1%, the Nasdaq Composite gained 0.2% and the Russell 2000 lost 0.2%.
Crude oil recovered from early weakness despite an EIA report showing crude stockpiles jumped 13.8 million barrels for the week ending February 3, well above the 2.5 million barrel build that was expected. This marked the fifth straight weekly increase and confirmed the large build reported by API after the close on Tuesday. A combination of a ramp up in U.S. shale output, doubts about the implementation of OPEC’s output freeze agreement, and waning gasoline demand is all playing a role.
Investors are unprepared, with the Financial Times reporting earlier this week that hedge funds have amassed the largest-ever bet on rising oil prices. The chart above shows how energy stocks keep weakening in response.
Thanks to a bid in Treasury bonds, yield-sensitive stocks led the way (again, a defensive dynamic). Utilities gained 0.9%, REITs gained 0.9%, and consumer staples gained 0.4%. Financials were the laggards, down 0.8%.
Panera Bread Co (NASDAQ:PNRA) gained 8.7% after reporting a Q4 earnings beat on in line revenue thanks to better margins. Positive management guidance and Panera 2.0 initiatives encouraged investors. On the downside, Zillow Group, Inc. (NASDAQ:ZG) fell 7.6% on weak user metrics and weak forward guidance.
The spike in Treasury bonds is a big deal, reversing the long downtrend that started in July and accelerated after Trump’s electoral victory on higher inflation and economic growth expectations. Some worry about the health of the economy is creeping in. And it’s weighing heavily on financial stocks, one of the leading post-election sectors of the stock market, as hopes of higher profitability thanks to wide net interest margins fade away.
But it’s good news for Edge subscribers, who are enjoying a 4% gain in their ProShares Ultra Treasury Bond (NYSEARCA:UBT) holding.
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.
