U.S. equities melted higher on Thursday, pushing large-caps to new record highs, thanks to strength in crude oil (providing much needed relief to the energy sector after Wednesday’s decline) driven by a larger-than-expected inventory drawdown. In fact, it was the largest draw since 2016 even as production hits a 21-month high, suggesting strong-end demand.
Will it be enough to offset surging U.S. shale output? Likely not. Especially since OPEC’s compliance with its supply freeze agreement is falling (the headlines that pushed the energy complex lower on Wednesday). Late-session selling in crude supports this thesis.
In the end, the Dow Jones Industrial Average gained 0.7% (new high), the S&P 500 gained 0.8% (new high), the Nasdaq Composite gained 0.8% (new high) and the Russell 2000 gained 1.9%. Treasury bonds weakened, the dollar climbed, gold lost 0.4% and oil gained 0.1%, though more sizable gains earlier in the session faded away. In fact, the United States Oil Fund LP (ETF) (NYSEARCA:USO) actually closed in the red, down 0.5%, after trading up as much as 2%.
Breadth was heavily positive, with 4.8 advancers to every decliner on the NYSE (strongest since March). Volume was good, at 110% of the 30-day average. Financials (which along with energy were the laggards on Wednesday) led the way higher with a 1.2% gain. Tech stocks were the laggards for a change, up just 0.3%.
Palo Alto Networks Inc (NYSE:PANW) surged 17.2% on a quarterly earnings beat and strong guidance. Express, Inc. (NYSE:EXPR) continued the carnage underway in brick-and-mortar retail, falling 19.3% on a wider-than-expected quarterly loss as margins suffered from promotional activity.
The strength in small-cap stocks was notable, with the Russell 2000 enjoying its best one-day performance relative to the S&P 500 since early December. Considering how small caps have lagged the tech-heavy Nasdaq in recent months, resulting in narrowing measures of market breadth, this could indicate buyers are feeling reinvigorated.
Other positive catalysts include a slight bump up in the Atlanta Fed’s GDPNow real-time estimate of Q2 growth, a strong ADP private payroll report heading into Friday’s jobs numbers, and President Trump’s announcement the United States was exiting the Paris Agreement on carbon emissions.
Shares rallied into the close as Trump spoke, ostensibly on a deregulatory tailwind. According to the U.S. Chamber of Commerce, Trump is saving 1.1 million jobs in the industrial sector. And he is saving the average family of four $20,000 by 2035 via lower electricity costs according to the Heritage Foundation.
Auto sales weakness — the fourth consecutive monthly miss and the second-worst result since February 2015 — was largely ignored. Ford (NYSE:F) gained 2.6%.
Despite the market’s rise, breadth remains a problem resulting in another “Hindenburg Omen” signal flashing today — the fourth signal since large-caps topped out in March. This is also the largest cluster of Omen signals since the summer of 2015, which marked the start of an eight-month period of market volatility that saw the Dow test the 15,500 level three separate times.
The economic data continues to disappoint on a scale not seen since late 2015 according to the Citigroup Economic Surprise Index. The Federal Reserve is set to hike interest rates again in just two weeks. We are entering a seasonally difficult period of the year for stocks. And crude oil continues to grind lower, which is bad news for corporate earnings.
So caution is still very much warranted here.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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Check out Serge Berger’s Trade of the Day for June 2.