Can stocks follow through on the rally without FAANG leadership? Inflation may be driving a change in market leadership with Energy and Financials as the beneficiary
Key Takeaways: Nike (NKE)was trading down 5% in pre-market action after reporting lower than expected revenues last quarter and slashed its revenue projections. The company cited high demand for its athletic gear, but the broken supply chain is giving Nike issues in Vietnam and Indonesia. However, chemical company H. B. Fuller (FUL) traded 2% higher in pre-market trading on better than expected revenues. Costco (COST) also traded higher before the open with better-than-expected revenues but warned that inflation, higher labor costs, higher freight and transportation costs, and supply chain delays could slow them down. Fed members including Chair Jerome Powell are hitting the speaker circuit on Friday. Investors will likely listen in for more clues on the taper timeline. August new home sales will report after the open. It’s likely that the report will be similar to the building permits report earlier in the week, indicating higher demand but an inability to get construction supplies. Stocks rallied on Thursday without the leadership of the FAANG stocks. Instead, upbeat guidance from Accenture ACN (ACN), Darden Restaurants DRI (DRI), and Salesforce.com (CRM) appeared to help lead the charge. Energy stocks provided a lift too. The Energy Select Sector Index ($IXE) was the top group rising about 3.5% in response to a 1.2% rally in oil prices (/CL). Exxon (XOM) and Chevron CVX (CVX) were among the leaders in the sector. Rising oil in the wake of the Fed’s more hawkish stance, pushed the 10-Year Treasury Index (TNX) up more than 5.5%. Rising yields helped spark a rally in the Financial Select Sector Index ($IXM) which includes companies like Citigroup C (C), Bank of America BAC (BAC) and JPMorgan Chase JPM (JPM). The bulls were able to make some technical gains. The S&P 500 (SPX) filled Monday’s gap down and reclaim the 50-day moving average. Apparently, “buy the dip” is not dead yet. Fed Chair Jerome Powell appears to have been just hawkish enough for bond traders but accommodative enough for stock traders. The Fed’s messaging, the low likelihood of contagion with Evergrande’s debt issues, and downtrending jobless claims seem to be giving the bulls are reason to charge. The market began charging higher even before Wednesday’s Fed meeting and has continued to gain pretty much since then as investors contemplated a possible near-term taper of the Fed’s stimulus.
