U.S. equities finished higher on Wednesday thanks to a strong bounce in energy prices, recovering from early weakness.
In the end, the Dow Jones Industrial Average gained 0.6%, the S&P 500 gained 1.1%, the Nasdaq Composite gained 1.6% and the Russell 2000 gained 1.2%. Treasury bonds were weaker, the dollar was lower, gold dropped 0.4% and crude oil gained 5.4% to close at $37.81.
The rise in crude oil was based on a surprise drop in inventories data. Tuesday night’s API report showed crude stockpiles fell 4.6 million barrels last week vs. expectations for a 2.9-million-barrel build. Today’s EIA data showed an even larger draw, with inventories down 4.9 million barrels vs. last week’s 2.3 million build.
A ramp up in refinery activity to meet the coming summer driving season was fingered for the swing. And there are also those lingering hopes of a Russia/OPEC production freeze deal.
Energy stocks and health care led the way with gains of 2.1% and 2.7% respectively. Defensive telecom and utility stocks were the laggards falling 1% and 0.1% respectively.
Pfizer Inc. (NYSE:PFE) gained 5% on the confirmation of the termination of its $150 billion merger with Allergan plc Ordinary Shares (NYSE:AGN) in the wake of the release of harsher-than-expected measures by the Treasury Department to clamp down on corporate tax inversions. Biotech stocks as a group gained 6% and are up 9.6% in April so far on the belief PFE could be on the hunt for smaller acquisitions.
On the economic front, the release of the Federal Reserve’s March meeting minutes held few surprises, with policymakers acknowledging recent strength in the job market by worried about inflation returning to target and the downside risks to their forecasts from global instabilities. Watch for more Fed speak on Thursday when Fed chairman Janet Yellen holds a public conversation with former Fed chairs Ben Bernanke, Alan Greenspan and Paul Volcker.
For now, the technical and fundamental outlook still looks challenging for stocks as the Dow contends with major overhead resistance. On Tuesday the Atlanta Fed lowered its Q1 GDPNow forecast to just 0.4% from 0.7% previously. The start of the first-quarter earnings season is April 11, with analysts looking for S&P 500 earnings to decline 8.5% over last year — on track for the fourth consecutive quarter of falling profitability.
You can see the loss of buying momentum in the way measures of market breadth are rolling over and the fact that the Dow touched its 18-day moving average today — on an intraday basis — for the first time since Feb. 24.
And despite the day’s bounce in oil prices, the medium-term trend in energy is to the downside with hopes dimming on any supply freeze deal.
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.
