U.S. equities rebounded strongly from mid-day losses thanks to headlines that OPEC officials had reportedly reached an agreement to cut output somewhere between 200,000 and 700,000 barrels per day from the 33.2 million pumped in August.
Although details and execution of the agreement isn’t expected until the official meeting in November, this was seen as a breakthrough and step toward bringing the oversupplied global energy market back into balance — something that has been hinted at since February.
In the end, the Dow Jones Industrial Average gained 0.6%, the S&P 500 Index gained 0.5%, the Nasdaq Composite gained 0.2% and the Russell 2000 finished the day 0.8% higher. Treasury bonds were slightly weaker, the dollar was mixed, gold extended its losses from Tuesday with another 0.5% decline and crude surged 5.3% for its best one-day gain since April.
No surprise that energy stocks led the way higher, up 4.3%. Telecoms were the laggards down 1.1%. BlackBerry Ltd (NASDAQ:BBRY) gained 5.7% after reporting good Q2 earnings despite a revenue miss on noted it’s on track to deliver 30% revenue growth in software and services, boosting guidance.
Nike Inc (NYSE:NKE) fell 3.8% despite a top- and bottom-line quarterly beat on weaker margins and weak forward guidance. Twitter Inc (NYSE:TWTR) fell 3.2% as skepticism grows surrounding M&A speculation.
Continuing the recent strength seen in tech stocks, HP Inc (NYSE:HPQ) gained 1% to push the Oct $15 calls recommended to Edge Pro subscribers to a gain of more than 63%.
On the economic front, durable goods orders were mixed in August following a 3.6% gain in July. Commercial aircraft was a drag. And Core capital goods shipments fell 0.4% following a 0.7% decline in July. This marked the fourth straight month of declines (down in nine of the past 12 months).
Federal Reserve officials were out in force as well, with Federal Reserve Board Chair Janet Yellen saying most officials expected a rate hike this year (but didn’t offer a timeline).
San Francisco Fed president Williams said the economy is strong enough to withstand a rate hike. Chicago Fed president Evans said weak growth, an aging workforce and poor productivity may leave the United States with low interest rates for years to come. And former Philadelphia Fed president Plosser said Fed officials have a credibility problem after failing to fully explain the September “no hike” decision as confusion about the policy path grows.
Turning back to the OPEC news, a number of questions remain. OPEC will reportedly looking for buy-in on this production freeze from non-OPEC countries (Russia), which is unlikely to happen.
Moreover, tensions between Saudi Arabia and Iran remains high. And after recapturing market share from U.S. shale producers — which was the point of the oil price war that started in 2014 — is Riyadh really ready to surrender these gains?
Because should oil prices rally strongly from here, on production freeze hopes (remember that the IEA’s executive director doesn’t expect the global oil market to balance until late 2017), U.S. oil production will ramp up quickly.
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.
