Energy is taking its cue from crude prices
Energy does not ignore lower regulations and political goals, but it seems to be more in its own world now than other sectors. Given that the energy sector is still recovering from the precipitous fall in oil prices from mid-2014 to early 2016, multiples before the election were already stretched at 37x. However, the sector itself moved only 3%. This small change could be due to the sector still appearing expensive because of trough valuations even though oil prices have risen since the election. The next move will be a call on global supply and demand, but you can be ready either way with ERX (3X Energy Bull) or ERY (3X Energy Bear).
Energy stocks (ERX) (ERY) rose significantly in the first few weeks after Donald Trump was elected president. Trump has proposed to aggressively expand opportunities by bringing more federal land under crude oil and natural gas drilling and open new markets for the energy sector. He has promised to improve the coal industry, which has been struggling for a while.
He has also pledged to help energy companies by encouraging more drilling and reducing regulations. He could remove regulatory restrictions on oil and gas exploration and production. However, more production would be bearish for crude oil, with the supply glut already containing oil prices.
However, despite much lower oil (USO) prices, energy valuations remain high, partly due to negative earnings in some energy stocks. That could explain why the energy sector has risen only 3.0% since the elections.
While the number of rigs has fallen, production remains high due to higher efficiency. That’s countering OPEC’s (Organization of the Petroleum Exporting Countries) cut of 1.2 million barrels per day. OPEC may have to extend its self-imposed cut in order to reduce the supply glut. Where oil prices go now depends on whether the demand for oil, especially from Asia, increases.
On March 15, 2017, the Fed announced its much-awaited interest rate hike—the first increase this year. It's the third rate hike in the past decade.
Broadcom (AVGO) stock fell ~8.5% after markets closed yesterday following the semiconductor giant's fiscal 2019 second-quarter earnings release. It missed analysts' revenue estimate and cut its fiscal 2019 revenue guidance by $2 billion to $22.5 billion due to sluggishness in its semiconductor solutions business.
The SPDR Gold Shares ETF (GLD), which tracks physical gold prices, has underperformed the broader markets year-to-date, rising just 4.4% compared to the S&P 500’s (SPY) gain of 15.9% as of June 14. The sentiment for gold, however, has been turning around.
Safe havens such as Treasuries and gold were back in favor on June 14 as stocks fell due to rising tensions in the Middle East, concerns over growth, and the looming threat of the US-China trade war. The tech-heavy Nasdaq Composite Index fell 0.67% in the first hour of trading.
Lululemon (LULU) stock rose 2.1% on June 13 in reaction to better-than-expected first-quarter results and an upgraded outlook for fiscal 2019 overall. The company's first-quarter adjusted EPS grew 34.5% to $0.74 on revenue growth of 20.4% to $782.32 million. Analysts had expected EPS of $0.70 and revenue of $755.31 million. Here's why the outlook got an upgrade.
As of 4:40 AM Eastern Time today, US crude oil active futures were at $51.83, ~4% below their closing level in the previous week. If US crude oil prices stay at those levels today, they'll mark their third week of decline in five weeks.
Amazon is discontinuing its Amazon Restaurants service, which has been delivering food for restaurants in parts of the United States. Amazon Restaurants launched in the United States in 2015 and entered the British market the following year. However, it met strong opposition in the British market.