by Eli Wright
Oil prices gave energy stocks a boost yesterday, bumping Wall Street to all-time highs. Asian markets followed overnight. The Nikkei closed 0.31% higher, at 18,162.94; the Shanghai Composite was up 0.91% to 3,247.52; and the Hang Seng jumped 1.56% to 22,707.
In Europe, markets opened higher, with the FTSE up 1% to 6,145.3; the DAX also up 0.65% to 10,753; and the Euro Stoxx 50 up 0.73% to 3,057.
The S&P 500, Dow, and NASDAQ all broke records yesterday. Trading volume was unremarkable given that it is a shortened holiday week, but the S&P rose 0.75% to end the day at 2,198.18; the Dow closed up 0.47% at 18,956.69; the NASDAQ rose 0.89% to 5,368.86. Small caps gained as well, as the Russell 2000 rose for a twelfth consecutive day, to a record high of 1,322.92.
In pre-market trading the S&P and Dow are both up 0.28%; the NASDAQ rose 0.24%.
Rising U.S. Treasury yields seem to have tempted buyers back, and yields have taken a slight dip as a result. The 10-Year bond yield is currently at 2.301%; 30-Year yield is 2.969%.
When it comes to Wall Street recently, bulls appear to hold all the cards. However, expect lighter trading volumes for the rest of the week, with a holiday tomorrow in Japan and Thanksgiving on Thursday. That could mean larger swings if something unexpected occurs (like controversial Trump staff designations). Also anticipate a little profit-taking.
Forex
The dollar continues to gain strength off the expected December rate hike, helped along by positive U.S. data. It could get a further boost today when Existing Home Sales figures are released. The Dollar Index currently stands at 100.86.
The yen recently fell to five-and-a-half month lows versus the dollar, while the Swiss franc, another safe haven, is hovering near nine-month lows against the greenback
The euro has struggled mightily against the dollar since Trump’s election, falling to 11-month lows last week. It is unlikely to regain any sort of bullish footing until positive dollar sentiment dies down. Even after the probable Fed rate hike, in the wake of Brexit and Trump’s victory, there is every possibility the euro will be plagued with European right-wing/nationalist concerns, with upcoming elections in Austria, Italy, France, the Netherlands, and Germany.
The pound lost value in early October, when relations frayed between the financial industry and Theresa May’s government, with banks threatening to leave Britain in the wake of Brexit. However, sterling hasn’t struggled appreciably since the U.S. election like other currencies have. And now, bankers have begun mixing their dire warnings with optimism. “I don’t think London will lose its gravitational pull in terms of management of capital in any reasonable timeframe,” Barclay’s CEO Jes Staley said.
Looking at a technical chart, the cable is currently consolidating, perhaps even demonstrating a slight counter-trend, but prices will have to reach the previous range before a breakout can be confirmed.
Commodities
Gold has been weighed down by a rising dollar and increasing risk appetite for investors. There’s still some rather robust support at $1,200, but if there’s a time for that zone to get tested, the next week or two is it. Gold is currently trading at $1,217.15.
Oil prices escalated four percent to three-week highs yesterday, as Russian President Putin said he saw “high probability” that an agreement to curb oil production could be reached later this month. OPEC meets in Vienna on November 30. We’ve been here before and talks could just as easily falter this time, so perhaps wait a bit longer before getting bullish on oil. “You never know with OPEC – sometimes they go to the last minute, and there are a lot of false starts,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago.
Crude is currently trading at $48.92; Brent is at $49.73.
In what might be its first taste of freezing winter weather, gas prices inched 0.34% higher. As of writing, they are at $2.96.
Stocks
Earnings season unofficially ended when Wal-Mart (NYSE:WMT) reported last week, but there’s still a trickle of companies late to the game.
Tech giant Hewlett Packard Enterprise Co (NYSE:HPE, (NYSE:HPQ)) reports earnings after the market close. It’s important to mention that the company recently completed its split into two separate companies, so there will be two reports: one for HPQ, the PC and printing business, and another for HPE, which retained the tech solutions segment.
HPQ is expected to report Q4 2016 ESP of $0.36 on $11.84 billion in revenue. In the past two quarters, EPS have outperformed forecasts by an average of 28%. Last quarter, HPQ’s largest revenue driver, PCs, netted $7.5 billion, up 4% YoY, this at a time when worldwide PC sales were actually down 4.5%. The printing division suffered last quarter, with net revenue of $4.4 billion, an 18% YoY decline. However, HPQ’s $1.05 billion deal for Samsung’s printing operations, which includes supplies, as well as over 6,500 patents, could give their printing segment a boost. Another positive for investors is HPQ’s 3.3% dividends.
HPE is expected to report Q4 2016 ESP of $0.60 on $12.85 billion in revenue. HPE’s largest revenue driver is servers, in which it owns approximately 25% of the worldwide service market share (by revenue). Importantly, the company, under CEO Meg Whitman, is making a concerted effort to spin off their large portfolio of non-core businesses, to invest more in their higher margin segments, such as technology services, networking, and storage. These overhauls should yield short-term benefits. It remains to be seen how cloud computing, and competition from companies like IBM (NYSE:IBM), Oracle (NYSE:ORCL), Google (NASDAQ:GOOGL), and Amazon (NASDAQ:AMZN), impact them in the long run.
Fashion retailer Urban Outfitters (NASDAQ:URBN) is also reporting earnings after markets close, with expected Q3 2017 EPS of $0.44, on $869.7 million in revenue. Urban Outfitters has outperformed EPS forecasts in three of the past four reports, by an average of 25%. Over 90% of the company’s revenue comes from their retail segment, through their Urban Outfitters, Anthropologie, and Free People brands. Last quarter total revenue was $890,568, a 3% increase YoY. Shares have appreciated 63% this calendar year, well above competitors such as Abercrombie & Fitch Company (NYSE:ANF), Gap Inc (NYSE:GPS), and American Eagle Outfitters Inc (NYSE:AEO). With a comparable P/E ratio to those competitors, but a much better performing stock as late, look at Urban Outfitters if you have an interest in retail clothing companies.