Thursday, October 15, 2015

Equities Bounce Back off Fed Hopes

Another earnings day passes us, but this one is traded in a different direction. As Wednesday's session was littered with worries over retail performance given Wal-Mart's profit outlook, today traders bounce back with some bullish sentiment supported by a rally in the financial sector. Even though there were losses reported in bond trading, both Goldman Sachs and Citigroup surprised investors with an EPS $0.03 above the forecast. If anything, it gives hope to individuals with major doubts about the system. Many traders are also reacting to the recent reports of "modest" economic numbers that should fend off the Fed's desire to raise rates. Many dovish dissenters, like FOMC Governor Tarullo, have already revealed their preference of stalling the rate hikes. As a result, the Dow Jones Industrial Average bounded up 217 points to register a 1.28% gain, reaching a 7-week high. The S&P 500 grew just a little more reporting gains of 1.49%. The United States was not the only country enjoying a day of pleasant trading as equities across Europe and Asia grew today with many major indices increasing more than 1%. The Dow and S&P now have one bounce off the 17,000 and 2,000 levels which could be established as new supports. Another major move concerning Treasuries today could show more faith in a rebound. U.S. Treasury bills with 10-year maturity rates dropped dramatically in price today as yields maintained small growth over the 2% rate. This movement comes as investor sentiment surrounding rate increases gets stronger, and equities markets attempt to push for more stability. As stocks closed much higher, crude oil moved in its own world. WTI and Brent closed slightly down with losses of -0.60% and -0.90%. A report from the EIA sent bears into action as stocks were seen to grow by about 7.6 million barrels over the past week. With that, many of the gains posted in the last week were reversed. As the commodity price weakened, oil ETFs actually finished in the green. OIL, one of the most popular bets on American crude, grew by 0.11%. UCO and UWTI grew a little bit more with their accelerated status. Energy companies fared well today in the bullish market with the Dow Jones energy and the S&P energy index both gaining 1.24% and 1.63% respectively. Energy companies struggling to maintain cash flow are hoping for the Fed to maintain low-interest rates. With more support behind rate hike delays, investors are more willing to bet on the sector to survive. Depending on when traders see WTI rebounds, the momentum behind oil and gas firms will accumulate. Today, gains from the energy sector topped 1.58% with coal as the leading industry within the group.

Another important event today produced an earnings report that could be important for the oil services industry. Schlumberger is one of the first of its industry to reveal third quarter numbers, and they came out just as expected. An expected earnings-per-share of $0.77 was barely topped by an actual $0.78. Due to low oil prices, earnings fell substantially by 49% from the last quarter. Most of those losses were caused by a squeeze on demand and benchmark price in the United States. Foreign business fell less which highlights the weakening situation in the United States. Revenue fell by 39% as well, but initiatives to reduce costs helped to decrease operational spending. As investors see one of the largest oil services entities taking major damage from the fundamental situation, I'd expect a loss in confidence in oil and gas firms as they produce similar results. In the post-market session, Schlumberger shares fell -0.7% with more shorts to come in the morning.

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