On Friday, the major indices ended off a strong week on a high that sent the S&P 500 higher by 0.7%. The benchmark index gained 4.1% for the week while the NASDAQ advanced 0.7%, extending its weekly advance to 5.3%. Overall, the Dow Jones was up 127.51 points to close at 16,805.41 while the NASDAQ was up 30.92 points to close at 4,483.71. The S&P 500 was up 13.76 on Friday to close at 1,964.58.
On Friday, indices endured a shaky start with a handful of concerns factoring into the cautious posture in the early part of trading. Contagion concerns stemmed from news that a New York doctor who exhibited Ebola-like symptoms on Thursday tested positive for the disease. There was also disappointing economic data coming in from China that revealed a 1.3% year-over-year drop in New Home Sales and featured monthly declines in all 70 cities. Additionally Amazon.com released earnings that were below analyst expectations. However, the markets were not deterred and ended the week strong.
After spinning their wheels through the opening hour, the key indices were able to pull away from their flat lines with help from influential sectors. In addition, traders were boosted by news from the National Institute of Health indicating Dallas Presbyterian nurse Nina Pham has recovered from Ebola.
Coincidentally, the health care sector was up 1.4%, settling in the lead with significant support from Bristol-Myers. The pharma firm posted gains of 2.2% in reaction to upbeat quarterly results. Similar to health care, the remaining three countercyclical sectors ended ahead of the broader market with gains between 0.8% and 1.0%.
S&P 500 (October 20th – 24th, 2014)
Meanwhile, the cyclical groups ended in mixed fashion with respect to the S&P 500. Financial services were up 0.9% and industrials were up 0.9%, outperforming while consumer discretionary dropped 0.1% and energy declined 0.3%. The consumer discretionary sector was pressured by an 8.3% loss in the shares of Amazon.com while also enduring weakness among carmakers. Automaker Ford lost 4.3% after surpassing bottom-line estimates on below-consensus revenue.
For its part, the energy sector stumbled in the morning amid weakness in crude oil. The energy component climbed off its worst level of the day, but still ended lower by 1.2% at $81.03/bbl.
Also of note, the technology sector was up 0.8% and traded in-line with the market for the majority of trading on Friday before joining the leaders in the afternoon. Dow component Microsoft advanced 2.5% after beating earnings and revenue estimates.
Participation was roughly in-line with long-term averages as 700 million shares changed hands at the NYSE floor. Economic data was limited to the New Home Sales report for September, which revealed a 0.2% increase to 467,000 from a revised rate of 466,000 (from 504,000). However, that was below analyst expectations, which expected a reading of 475,000. Most notably, the large downward revision to the August figures took away what had been the strongest monthly reading since May 2008. Prices for new homes fell 4.0% year-over-year, which was the first such decline since April and the largest drop since a 7.7% tumble in January 2012.
On Friday, analysts were keeping a close eye on oil companies, including U.S. producer ExxonMobil since the price of oil continues to decline. Since ExxonMobil is scheduled to publish earnings this coming week, it was noted that traders will want to see Exxon’s “Plan B” for production growth—a lot of Exxon’s output hopes were riding on developing oil fields in Russia’s Arctic. Exxon had an enviable position in one of the world’s most promising crude-producing areas, at a time when mega fields are no longer common.
That, of course, was before U.S. and European Union sanctions following the conflict between Russia and Ukraine derailed its plans. Exxon said in September it was winding down its operations in the area.
ExxonMobil (October 20th – 24th, 2014)
Traders will also be keen on hearing how Exxon is coping with lower oil prices. Oil futures are about 25% lower than their July peak, and have hit a string of multiyear lows recently on concerns about plentiful supplies and anemic global demand.
Right now, analysts who were polled by FactSet expect Exxon to report third-quarter earnings of $1.72 a share, compared with $1.79 a share a year earlier. Sales are expected at $103 billion, down from $112 billion a year ago. With regards to share price, Exxon shares have lost 6.9% this year, compared with gains of 6.3% for the S&P 500. The majority of analysts polled still believe that buying ExxonMobil stock is favorable with them predicting that its stock will rise in the coming weeks and months. Exxon’s costs are not as high as those of Chevron Corp. but investors and analysts have criticized the company for eroding its once-strong balance sheet. Exxon and other oil companies have responded to the criticism by saying they need to spend more to find oil in harder-to-reach locations.
Overall, the oil sector is still resilient because of the pervasive fee-based model that most of the midstream companies use. Their profits are usually linked to long-term fixed-fee contracts. The contracts are fairly immune to shorter-term swings in energy prices.
Some energy sub-sectors are taking cuts ranging from 10%–15%. This includes ExxonMobil and, as a result, these sectors didn’t perform well. However, they performed better than the pure upstream exploration and production sector. Right now there is a lot of speculation about where share prices will go for ExxonMobil but hopefully – for them – they will be on the up.
For the week, ExxonMobil’s stock reached a weekly high of $94.95 on Thursday after it started off the trading week at a weekly low of $90.90 on Monday.
the S&P 500 had its strongest week of 2014, with the rise starting on Thursday. Those that traded binary options based on the value of the S&P 500 through a binary call option on Thursday morning would have been “in the money” by the afternoon of the same trading day.
the Japanese yen didn’t perform all too well against the U.S. dollar apart from a slight jump on Thursday afternoon. Those that traded binary options based on the value of the USD/JPY currency pair midday on Thursday through a binary put option would have experienced successful results by the end of the same trading day.
in the lead-up to its earnings announcement next week, market analysts speculated about how this U.S. oil producing giant will perform. Despite a range of mixed opinions, this stock managed to end the week positively. Those that traded binary options based on the value of this stock on Friday morning through a binary call option would have been “in the money” by the afternoon of the same trading day.
As we head into another week in the markets, a few pieces of economic data will be released across the global markets. On Tuesday, October 28th, U.S. consumer confidence data will be announced. Then, on Thursday, October 30th, U.S. jobless claims will be released. At the end of the trading week on Friday, October 31st, U.S. consumer sentiment will be announced. If consumer sentiment rises, this should lead to a rise in the value of U.S. stocks and indices, demonstrating positivity for growth in the markets. As well, the trading community will be watching the situation around Ebola and if the disease sees another case in the U.S. this could cause in U.S. markets due to fear over further spreading across the country.
It was a strong week in U.S. markets as well as for the U.S. dollar. It seems that there is greater confidence in the strength of the U.S. economy even in the face of some poor corporate results and the announcement of yet another case of Ebola in another U.S. city. However, depending on what happens in the economy, next week should prove interesting as we see how the markets close off October.
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