Strength in Energy Prices Raising Expectations in the Sector

U.S. equities dribbled higher on Monday as the energy sector got a light from geopolitical turmoil in the Middle East, with Saudi Arabia in focus amid an apparent power play within the royal family.

M&A activity was in focus as well, with deal talks between Sprint Corp. (NYSE:S) and T-Mobile US Inc (NASDAQ:TMUS) breaking down while Broadcom Ltd (NASDAQ:AVGO) made a $130 billion offer for Qualcomm, Inc. (NASDAQ:QCOM).

In the end, the Dow Jones Industrial Average gained a fraction, the S&P 500 gained 0.1%, the Nasdaq Composite wafted up 0.3% and the Russell 2000 endded the day 0.2% higher. Elsewhere, Treasury bonds were mostly stronger, the dollar was weaker, gold gained 1% and crude oil extended its rally to add 3.1%.

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Breadth was positive, with 1.4 advancers for every declining issue. Volume was solid, with NYSE activity at 108% of the 30-day average. Energy led the way with a 2.2% gain while telecom was the laggard, down 2.4%.

Michael Kors Holdings Ltd (NYSE:KORS) gained 14.7% on a quarterly earnings beat with revenues 9% ahead of estimates on better-than-expected comp-store sales.

In more M&A news, Cavium Inc (NASDAQ:CAVM) gained 12% on reports Marvel Technology Group Ltd. (NASDAQ:MRVL) is in advanced talks to buy the company while Twenty-First Century Fox Inc (NASDAQ:FOXA) gained 9.9% on reports the company is looking to sell most of itself to Walt Disney Co (NYSE:DIS). And Advanced Micro Devices, Inc. (NASDAQ:AMD) gained 7.3% on reports the company is teaming with Intel Corporation (NASDAQ:INTC) to produce a gaming laptop to compete with Nvidia Corporation (NASDAQ:NVDA).

On the downside, Sprint shares fell 11.5% while T-Mobile shares fell 5.7% on the deal breakdown.


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With Saudi Arabia embroiled in a power struggle, Arizona GOP Senator John McCain pooh-poohing on the chances of tax reform in the Senate and equity market valuations off the charts, the market bulls could only think of one thing to do: Buy stocks.

As a result, the S&P 500 is now within seven points of Goldman Sachs’ 2019 end-of-year target.

The move in crude oil is most notable, with the $60-a-barrel level in focus for the first time since 2015 as U.S. production rolls over (although, near its 2014 high) and U.S. inventories drop below year-ago levels.

Never mind that higher energy prices are likely to uncap inflation, and thus result in more aggressive policy tightening from the Federal Reserve.

For now, higher energy prices are driving expectations of increase energy-sector earnings, pushing up the VanEck Oil Services ETF (NYSEARCA:OIH) out of a multi-month consolidation. 

Check out Serge Berger’s Trade of the Day for Nov. 7.

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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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.

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