Energy Stocks Surge As Europe Strikes Stimulus Deal

Hi Everyone,

The stock market finished mixed following a two-faced and choppy session that ended on a negative note, despite a strong rally in the energy and financial sectors. The Dow was up 160, or 0.6%, to 26,840, the Nasdaq lost 87, or 0.8%, to 10,680, while the S&P 500 rose by 5, or 0.2%, to 3,257. Decliners outnumbered advancing issues by a 4-to-1 ratio on the NYSE, where volume remained very light.

Traders said that we had the second mixed day in a row on Wall Street, but today’s session was almost the mirror image of yesterday’s one. As one trader explained, “Even though the Nasdaq opened at a new all-time high, the tech sector wasn’t able to maintain yesterday’s momentum, but the surging energy sector and small caps saved the Dow and the S&P 500, as investors hailed the European stimulus deal.”

While a lot of analysts feared a watered-down European stimulus package, the final deal was very close to the original French-German proposal. Roughly half of the $850 billion fund will consist of direct grants to the hardest-hit countries like Italy and Spain, which could provide stability in the uncertain post-COVID era and support the global economic recovery. Critics say that the deal is too little, too late. Investors clearly think that it is a step in the right direction, and sure enough, the euro hit its highest level since late-2018 against the dollar.

The dollar’s weakness, which confirms the decreasing stress on the global financial system, could help domestic stocks down the road, especially in the most export-focused industries. We got another batch of positive earnings reports as well, with Lockheed Martin (LMT), Coca-Cola (KO), Philip Morris (PM), and Texas Instruments (TXN) all beating on their bottom lines. The tech company’s bullish outlook could lift the Nasdaq tomorrow morning, as it reported after the bell, while the healthcare sector will be in focus tomorrow, due to reports from Biogen (BIIB) Thermo Fisher (TMO), and HCA Health (HCA).

After the highly-anticipated EU deal, the planned next round of U.S. stimulus will likely remain at the center of attention throughout the week. A lot of rumors are already floating around concerning the possible structure of the bill, and while hints of a possible direct payment boosted risk assets, the timing of a stimulus could prove vital too. House Minority Leader Kevin McCarthy told the press that a new bill would likely not be passed until August, causing a late-session dip on Wall Street, as the federal unemployment benefit will expire at the end of the month.

The housing market will be in the spotlight tomorrow in terms of economic releases, but the energy sector could be in for another busy day due to the release of weekly crude oil inventory data. The Housing Price Index and existing home sales will both be out in the morning, and analysts expect improvements in both indicators, with a huge, almost 30% rebound in sales. Last week, crude inventories plunged by 7 million barrels, and a similar figure could send the price of oil to another 18-week high following today’s rally.

As always, have a great evening and stay tuned!!!

Joe

Skills

Posted on

July 22, 2020

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