S&P 500 Heads Towards The 4000 Level As Treasury Yields Decline

Key Insights

  • Lower Treasury yields and weaker dollar provided significant support to stocks. 
  • Energy and basic materials stocks led the rebound. 
  • Best Buy rallied after beating analyst estimates. 

Energy Stocks Rebound As WTI Oil Moves Towards The $82 Level

S&P 500 moved towards the 4000 level as energy stocks rebounded after yesterday’s pullback. Marathon Petroleum, APA Corporation, and Hess Corporation were up by 5% in today’s trading session.

Basic materials stocks, including the copper producer Freeport-McMoRan and the fertilizer producer Mosaic, have also gained strong upside momentum today.

Best Buy was the biggest gainer in the S&P 500 today. The stock gained 11% after the retailer beat analyst estimates, raised full-year guidance and resumed its buyback program.

Meanwhile, Dollar Tree declined by 9% as traders focused on the disappointing earnings forecast.

The tech-heavy NASDAQ Composite gained 0.8% as tech stocks moved higher. Interestingly, Tesla managed to move away from yearly lows despite worries that it could cut prices in China due to weak demand.

From a big picture point of view, the rebound was broad, and all market segments managed to gain upside momentum in today’s trading session. Weaker U.S. dollar and lower Treasury yields provided material support to stocks today.

S&P 500 Tries To Get Out Of The Recent Trading Range

S&P 500

S&P 500 failed to develop downside momentum in recent trading sessions and managed to get back above the 3960 level. To continue its rebound, S&P 500 must settle above the resistance at 4000.

RSI remains in the moderate territory, so there is plenty of room to gain upside momentum in case the right catalysts emerge. However, it remains to be seen whether S&P 500 will be able to gain significant momentum ahead of Thanksgiving. Usually, many traders take a break at this time of the year, so trading volume declines.

The current setup looks bullish as S&P 500 managed to stabilize in the wide 3920 – 4000 range after the strong rally. In case S&P 500 manages to settle above the 4000 level, it will have a great chance to get to the test of the important resistance level near the recent highs at 4040. A move above this level will signal that S&P 500 is ready for a strong move.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 (SPY) Rallies As Dollar Pulls Back From Highs

Key Insights

  • Weaker dollar and lower Treasury yields provided significant support to stocks today. 
  • Energy stocks enjoyed support amid a strong rebound in the oil market. 
  • A move above 3700 will push S&P 500 towards the resistance at 3725.

Stocks Rebound After Sell-Off

S&P 500 gained strong upside momentum and moved towards the 3700 level as traders rushed to buy oversold stocks.

The U.S. Dollar Index touched highs near 114.50 but lost momentum and pulled back towards the 113 level, providing material support to stocks.

Treasury yields have also moved lower. The yield of 10-year Treasuries declined from 4.00% to 3.75%, while the yield of 2-year Treasuries moved from 4.30% to 4.15%. Lower Treasury yields served as an additional positive catalyst for stocks.

The rebound is broad, which is not surprising as S&P 500 was oversold. Energy stocks enjoy strong support as WTI oil moved back above the $80 level. Marathon Petroleum, Hess, and Valero Energy are up by more than 4% in today’s trading session.

Basic materials stocks have also moved higher amid a broad rebound in commodity markets. The leading gold producer Newmont gained more than 3%, while copper producer Freeport-McMoRan is up by more than 2%.

Biogen gained 38% after the company revealed that its Alzheimer’s drug lecanemab was successful in a late-stage trial. Eli Lilly, which also develops a similar drug, is up by 8% today.

From a big picture point of view, traders will likely stay focused on the dynamics of U.S. dollar and Treasury yields. Demand for the U.S. dollar highlights the dynamics of demand for safe-haven assets. In case the U.S. dollar continues to move lower, stocks will get more support.

S&P 500 Tests Resistance At 3700

S&P 500

S&P 500 is currently trying to settle above the resistance at 3700. In case this attempt is successful, it will move towards the next resistance, which is located at 3725. A move above 3725 will push S&P 500 towards the resistance at 3750. If S&P 500 manages to settle above this level, it will head towards the resistance at 3780.

On the support side, a move below 3700 will open the way to the test of the support at 3660. If S&P 500 declines below this level, it will head towards the next support level at 3635. A successful test of this level will push S&P 500 towards the support at 3600.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 (SPY) Tests Support At 3635 As Dollar Moves Back To Yearly Highs

Key Insights

  • S&P 500 remains under pressure as Treasury yields test new highs. 
  • Energy stocks managed to gain some upside momentum today as WTI oil rebounded from recent lows. 
  • A move below 3635 will push S&P 500 towards the support at 3600.

S&P 500 Tests Yearly Lows

S&P 500 lost momentum and moved to new lows as traders continued to move out of riskier assets.

The yield of 10-year Treasuries tested new highs near 3.98%. The U.S. dollar also gained upside momentum and moved closer to yesterday’s highs. Strong dollar is bearish for stocks as it hurts profits of international companies and makes stocks less attractive for foreign investors.

Consumer stocks like Estee Lauder, Philip Morris, and Keurig Dr Pepper are among the biggest losers today.

Real estate stocks are also moving lower, which is not surprising as Treasury yields are testing new highs. REITs typically have significant debt levels, so they are sensitive to changes in yields.

Energy stocks gain ground in today’s trading session as WTI oil rebounds from recent lows. Valero Energy, Marathon Petroleum, and Baker Hughes are up by more than 2%.

From a big picture point of view, the market remains nervous. Today, S&P 500 made an attempt to gain upside momentum but faced strong resistance, which shows that traders are ready to use upside moves as an opportunity to sell stocks.

At this point, it looks that the market will continue to move lower if the U.S. dollar keeps testing new highs. The dynamics of the U.S. dollar will likely serve as the key catalyst in the near term. Stocks will have a chance to rebound when the American currency pulls back from highs,

S&P 500 Is Oversold, But Buyers Cannot Provide Enough Support To Stocks

S&P 500

The technical picture for S&P 500 remains bearish. While RSI is in the oversold territory, S&P 500 managed to settle below the support level at 3660 and is testing the next support at 3635.

This is an important support level as S&P 500 failed to settle below 3635 back in June. If S&P 500 declines below this level, it may quickly move towards the next support level at 3600.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 (SPY) Retreats As Treasury Yields Test New Highs

Key Insights

  • Stocks remain under pressure as Treasury yields keep moving higher. 
  • Traders stay focused on the hawkish Fed. 
  • A move below 3750 will push S&P 500 towards the support level at 3725.

Consumer Cyclical Stocks Decline Amid Recession Fears

S&P 500 remains under pressure as traders stay focused on hawkish Fed. Today’s Initial Jobless Claims report, which indicated that 213,000 Americans filed for unemployment benefits in a week, served as an additional negative catalyst for stocks. The job market remains tight, which pushes Fed to raise rates aggressively as it wants to cool demand.

Consumer cyclical stocks, which were among yesterday’s losers, are under strong pressure today. Caesars Entertainment, Expedia, Etsy are down by 5-8% in today’s trading session. The market prepares for a recession when consumers cut “unnecessary” purchases.

Treasury yields keep moving higher, which is bearish for tech stocks. Currently, the yield of 10-year Treasuries is trying to settle above the 3.70% level. Such yields were last seen back in 2011.

AMD and NVIDIA are among the biggest losers in the tech segment. Traders fear that weakening PC demand will hurt their results.

Energy stocks are gaining some ground today. Leaders include refining stocks like Valero Energy, Phillips 66, and Marathon Petroleum.

From a big picture point of view, the market remains bearish. Rising Treasury yields indicate that bond traders continue to prepare for aggressive rate hikes from the Fed. In case Treasury yields move to new highs, stocks may find themselves under more pressure.

S&P 500 Tests Support At 3750

S&P 500

S&P 500 is currently trying to settle below the support level at 3750. In case this attempt is successful, it will head towards the next support, which is located at 3725. A move below this level will open the way to the test of the support at 3700. If S&P 500 declines below 3700, it will head towards the support at 3660.

On the upside, the nearest resistance level for S&P 500 is located at 3780. If S&P 500 gets above this level, it will head towards the next resistance at 3800. A successful test of this level will push S&P 500 towards the resistance at 3825.

For a look at all of today’s economic events, check out our economic calendar.

Best ETFs To Buy In 2022

Key Insights

  • QQQ will gain strong upside momentum in case the broader market starts to rebound. 
  • XLE has a good chance to continue its strong move as demand for energy increases during the summer season. 
  • GDX could serve as a defensive asset if markets find themselves under pressure in the second half of the year and demand for gold increases. 

Global markets remain volatile, and many investors are searching for safer options to protect their funds. ETFs offer an easy way to get exposure to indexes or market segments without picking individual stocks. In this article, we’ll take a look at several ETFs which could provide interesting opportunities this year.

Invesco QQQ Trust

Invesco QQQ Trust has been under significant pressure since the start of this year as traders moved away from higher-PE stocks. As a result, QQQ is down by more than 20% year-to-date.

QQQ dynamics are driven by the dynamics of leading tech stocks like Apple, Microsoft, Amazon, and Tesla, which are trading at a discount to their recent price levels.

In case the general market mood improves in the second half of the year, money would flow back into these stocks, which will be bullish for QQQ.

Energy Select Sector SPDR Fund

Energy Select Sector SPDR Fund enjoyed strong upside momentum this year as energy prices increased.

XLE is heavily focused on Exxon Mobil and Chevron, although it also has services stocks like Schlumberger and refiners like Marathon Petroleum among its holdings.

While Exxon Mobil and Chevron are trading at all-time highs, they are valued at roughly 12 forward P/E and have a good chance to gain additional upside momentum in case WTI oil spends this summer above the $120 level.

VanEck Gold Miners ETF

Gold has lost a lot of ground after touching highs near $2070 in March, so it’s not surprising to see that VanEck Gold Miners ETF has been under pressure in recent months.

GDX is a good bet on the gold price rebound which would be useful in case gold starts to move back towards its yearly highs due to increased uncertainty.

It should be noted that gold prices have moved lower due to rising Treasury yields, but it remains to be seen whether rates will continue to rise at a fast pace as the economy would face material problems if the 10-year Treasury yield settles above the 3.50% level. If Treasury yields settle in the 3.00% – 3.50% level, gold will have a good chance to gain upside momentum.

To keep up with the latest earnings updates, visit our earnings calendar.

Leading Refinery Stocks Keep Testing New Highs

Key Insights

  • The strong rally in fuel markets puts refinery stocks in spotlight. 
  • The leading refinary stocks like Marathon Petroleum, Valero Energy and Phillips 66 are trading at yearly highs. 
  • While this year’s rally was strong, these stocks are trading at 12 – 14 forward P/E. 

As gasoline markets stay bullish, U.S. refinery stocks keep moving higher. Despite the huge rally in 2022, these stocks continue to trade at reasonable valuation levels.

Marathon Petroleum

Shares of Marathon Petroleum have recently settled above the $100 level and tested new all-time high levels. The stock is up by more than 50% year-to-date, but it remains reasonably valued.

Analysts expect that Marathon Petroleum will report earnings of $9.58 per share in the current year and $7.48 per share in the next year, so the stock is trading at less than 14 forward P/E.

It should be noted that analyst estimates are rising fast as the rally in the fuel markets is strong. Analyst estimates for the next year remain conservative, and they have more room for upside. In case longer-term estimates keep moving higher, Marathon Petroleum would gain additional upside momentum.

Valero Energy

Valero Energy is the second-biggest U.S. – listed refinery stock by market capitalization. Just like Marathon Petroleum, Valero Energy is trading at all-time high levels.

Currently, the stock is trading at 13 forward P/E, mostly in line with Marathon Petroleum, and enjoys the same positive catalysts.

Phillips 66

Unlike Marathon Petroleum and Valero Energy, Phillips 66 is not trading at all-time highs. However, the stock has also managed to gain strong upside momentum in recent weeks.

Analysts expect that Phillips 66 will report earnings of $8.63 per share in the next year, so the stock is trading at 12 forward P/E, which is a bit cheaper compared to Marathon Petroleum and Valero Energy.

In general, the market looks ready to buy a basket of leading refinery stocks, which would continue to move higher if fuel markets stay strong.

To keep up with the latest earnings updates, visit our earnings calendar.

Marathon Petroleum to Cut 12% Workforce as COVID-19 Bites; Analysts Optimistic on Stock Recovery

Marathon Petroleum, an American petroleum refining, marketing, and transportation company, said that it will slash 12% of its workforce as demand slowdown due to the COVID-19 pandemic has hurt business, sending its shares down about 0.3% on Wednesday.

Refiners and oil producers have been dismissing staff, slashing spending and reducing production to cope with weak prices and a global glut of fuel. U.S. gasoline futures are down 26% from a year ago and oil is trading down a third from where it had begun the year, Reuters reported.

In the second quarter, Marathon Petroleum reported net income of $9 million, or $0.01 per diluted share, worse than $1.1 billion, or $1.66 per diluted share, for the second quarter of 2019.

The U.S. oil refiner will announce third-quarter 2020 financial results on November 2. According to IBES data from Refinitiv, the company will post a $623 million loss in the third quarter.

Marathon Petroleum’s shares closed 0.3% lower at $29.34 on Wednesday; the stock is also down about 50% so far this year.

Marathon Petroleum stock forecast

Fourteen analysts forecast the average price in 12 months at $44.42 with a high forecast of $66.00 and a low forecast of $30.00. The average price target represents a 51.40% increase from the last price of $29.34. From those 14, ten analysts rated ‘Buy’, four analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $50 with a high of $60 under a bull scenario and $28 under the worst-case scenario. Wells Fargo lowered their price target to $42 from $51; Goldman Sachs cuts target price to $40 from $42; Citigroup cuts price target to $30 from $38; RBC lowered the target price to $40 from $44 and Simmons Energy cuts target price to $45 from $46.

Several other equity analysts have also updated their stock outlook. Credit Suisse Group boosted their target price on shares of Marathon Petroleum to $41 from $38 and gave the stock an “outperform” rating in May. Scotiabank dropped their target price to $48 from $51 and set a “sector outperform” rating in July. Royal Bank of Canada reiterated a “buy” rating and issued a $40.00 target price.

Analyst comment

“Marathon Petroleum Corporation (MPC) offers multiple ways to win. We expect MPC to benefit from the overall decline in crude prices, although we caution refined product demand risk could weigh on valuation. We prefer MPC as a large, diversified refiner to weather the current environment,” said Benny Wong, equity analyst at Morgan Stanley.

“We see a SoTP upside to ~$52/shr. Our SoTP is as follows: we assign $21/shr to midstream and $27/shr to refining. Adjusted for assets/liabilities, net debt, and synergies, our SoTP suggests a ~$52/shr valuation (>43% upside),” he added.

Upside and Downside Risks

Upside: 1) Oil prices stay depressed or decline further. 2) Successful spin-off of Speedway retail fuel business. 3) Potential separation of MPLX and conversion to a C-Corp. 4) Material widening of sweet-sour differentials, highlighted by Morgan Stanley.

Downside: 1) Demand risk. 2) Sweet-sour differentials narrow materially.

Marathon Petroleum to Sell Speedway for $21 billion to 7-Eleven; Target Price $48

Marathon Petroleum, an American petroleum refining, marketing, and transportation company, announced that it has entered into an agreement with 7-Eleven, a wholly-owned indirect subsidiary of Seven & i Holdings, to sell its Speedway gas stations in the United States for $21 billion in cash.

The $21 billion valuation represents a significant value unlock. The 100% cash transaction immediately captures value for MPC shareholders relative to potential valuation risks of other alternatives, the company said.

“We estimate a 17% equity valuation uplift from the transaction with proceeds evenly going to buybacks and debt, though that allocation will not be decided until deal close. Rating and price target under review,” said Jason Gabelman, equity analyst at Cowen.

“We expect MPC to target net debt at <1x mid-cycle EBITDA post-sale. We estimate $2.2 billion mid-cycle refining EBITDA plus $2.2 billion distributions from the MLP. This could mean $7.5 billion of sale proceeds go to debt paydown with the remainder to share buybacks, though one could argue the stable distributions from the MLP mean a higher debt multiple. The equity value change until deal close will impact how many shares will ultimately be repurchased and could be a driver of value creation from this sale.”

The deal is expected to result in after-tax cash proceeds of approximately $16.5 billion. Marathon Petroleum expects to use the proceeds to both repay debt to protect its investment-grade credit profile and return capital to shareholders.

The deal is anticipated to close in the first quarter of next year, subject to customary closing conditions and regulatory approvals. 7-Eleven said the agreement will help bring the total number of stores in the world’s biggest economy and Canada to nearly 14,000.

“We think this is a positive outcome for Marathon Petroleum, with the company receiving a price that’s above expectations (which we peg at ~$17-18 billion pre-tax), crystallizing Speedway value immediately, and bringing in more cash for greater financial flexibility (vs. a spin),” said Benny Wong, equity analyst at Morgan Stanley.

Following this deal, Seven & i shares fell more than 8% to JPY 2937.5 on Monday, the biggest one-day drop since March. Marathon Petroleum shares rose 0.5% to $38.38 in after-hours trading.

Executive comment

“This transaction marks a milestone on the strategic priorities we outlined earlier this year,” Michael J. Hennigan, president and chief executive officer said a press release.

“Our announcement crystalizes the significant value of the Speedway business, creates certainty around value realization and delivers on our commitment to unlock the value of our assets.  At the same time, the establishment of a long-term strategic relationship with 7-Eleven creates opportunities to improve our commercial performance.”

Marathon Petroleum stock forecast

Eleven analysts forecast the average price in 12 months at $47.09 with a high forecast of $61.00 and a low forecast of $38.00. The average price target represents a 23.27% increase from the last price of $38.20. From those 11, nine analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Marathon Petroleum had its price target trimmed by Scotiabank to $48 from $51 The firm currently has a sector outperform rating on the oil and gas company’s stock. Mizuho lowered its price target to $52 from $54. Jefferies cuts target price to $48 from $50.

Several other equity analysts have also updated their stock outlook. Jefferies Financial Group increased their target price on shares of Marathon Petroleum to $48.00 from $50.00. Morgan Stanley target price is $48 with a high of $60 under a bull scenario and $28 under the worst-case scenario. We think it is good to hold for now as 100-day Moving Average signals a mild selling opportunity.

Analyst comment

“Marathon Petroleum offers multiple ways to win. We expect MPC to benefit from the overall decline in crude prices, although we caution refined product demand risk could weigh on valuation. That said, the stock offers idiosyncratic upside as the company is undergoing a strategic review to unlock discounted value, which includes spinning out Speedway,” Morgan Stanley’s Wong said.

“We see a SoTP upside to ~$50/shr. Our SoTP is as follows: we assign $24/shr to retail, $21/shr to midstream, and $24/shr to refining. Adjusted for assets/liabilities, net debt, and synergies, our SoTP suggests a ~$51/shr valuation (>47% upside),” he added.

Upside and Downside Risks

Oil prices stay depressed or decline further; Successful spin-off of Speedway retail fuel business; Potential separation of MPLX and conversion to a C-Corp; Material widening of sweet-sour differentials, Morgan Stanley highlighted as upside risks to Marathon Petroleum.

Demand risk and Sweet-sour differentials narrow materially are two major downside risks.