Key Takeaways
- Stocks Show Resilience Despite Apple’s Drop And Concentration Risks
- Oil Prices Near Key Threshold, Potential Inflationary Pressure Builds
- Regional Banks Shine With Strong Earnings, Boosting Financial Sector
Despite stocks closing relatively unchanged on Thursday, stocks are on pace for their best week since early November with the S&P 500 higher by nearly 2% and the Nasdaq Composite up almost 1%. At the same time, we’ve seen bond prices stabilize after falling in four out of the last five weeks. However, we still have today to get through and it is a monthly expiration for options.
I think the big story for Thursday was the broad strength in the market. Although major indices were flat, shares of Apple had their worst day since August, falling 4%. Apple reported that it lost market share in China and that news cost the company $144 billion in market cap. However, to my initial point, despite the drop in Apple, markets didn’t really lose ground, and I think that is a very positive sign. I’ve talked quite a bit about concentration risk in the market and usually, when you see a market leader fall significantly, the entire market falls with it. The fact that we didn’t see that happen yesterday could be an indication of broader strength.
In a related story, China is reporting fourth quarter GDP rose 5%. However, this should be taken with a grain of salt. China’s economy has been struggling, and the country is in the throes of a real estate meltdown. Therefore, the growth rate reported by the government seems a bit disconnected from other data points coming out of the country.
One stock that doesn’t get much attention but caught my eye this morning is JB Hunt Transport Services. The trucking company reported revenue and earnings slightly above expectations; however, profit margins were reduced because of increases in overhead costs in things such as gasoline prices. That stock is indicated lower by 10% in premarket trading. We don’t often think about logistics companies such as trucking companies or dockworkers unless there is a problem. But their role is crucial and can have an inflationary impact on the economy.
Speaking of inflation, oil prices are set to rise for a fourth straight week. I’ve repeatedly mentioned $80 as a key threshold level and while we still remain below that level, the JB Hunt news exemplifies my point. We tend to think about oil and what it does to our own gas prices. But when oil prices increase and gas prices move higher, the entire supply chain infrastructure feels it and that can lead to inflationary pressure. Therefore, I’m continuing to monitor oil prices.
Taking a look at earnings, while the major banks reported earlier this week, some regional banks are still reporting. Truist Financial reported strong earnings overnight, sending those shares higher by 4%. Regions Banks also reported better than expected earnings. The S&P Regional Banking ETF is quietly up nearly 7% this week.
For today, it is January expiration and that is an expiration that tends to see elevated levels of volume because a lot of long-term options (LEAPs) expire. Therefore, today could be a heavy volume day. I’m going to be keeping an eye on bonds and oil. Average mortgage rates are now over 7% and that is something that can slow the economy. I’m also watching oil prices and that $80 threshold. Also, bitcoin prices are back up over $100,000. This seems to be a level prices have struggled to maintain, so we’ll see if it holds this time. Finally, Monday is a holiday and markets will be closed. Therefore, I’ll be back on Wednesday.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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