A positive vibe appears to be taking shape early Tuesday as the Fed gathers for its two-day meeting. Hopes for more stimulus by the European Central Bank seemed to provide the initial boost.
Positive vibe to start day as ECB president hints at stimulus
Figure 1: STUCK IN PLACE: Looking for trading excitement? It’s been very hard to find the last few days. This chart of the S&P 500 Index (candlestick) and the Cboe Volatility Index (purple line) shows just how much things have flattened out over the last month as investors await the Fed meeting and next week’s G20 gathering. Data Sources: Cboe Global Markets, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Curtain Call: With just a couple of weeks left in the quarter, we could be heading into a little seasonal volatility. It’s around now that some fund managers tend to engage in a time-honored practice called “window dressing.” No, we’re not talking about choosing the right shades or curtains. It’s a practice designed to make their clients’ portfolios look more palatable before those quarterly progress reports go in the mail (or now, the virtual mail). This means you could see some money shifting out of some of the poorer-performing sectors into some sectors that have more shine, and into some stocks with big recent gains.
The result, at times, can be further gains for stocks and sectors that already are doing well, and more pressure on poor performers. Sectors with more glowing records lately include Health Care, Real Estate, and Materials. Poor performers over the last month include Energy, Communication Services, and Industrials.
Oracle Steps to the Plate Tomorrow: While most people are watching the Fed closely tomorrow, that might not include the executives at Oracle (ORCL). They’ll be getting ready to share earnings after the close that afternoon. Most analysts expect a year-over-year revenue dip, although they also expect earnings per share (EPS) to rise in ORCL’s fiscal Q4. Guidance is likely to also get a close look, with the company saying last quarter that it expects double-digit EPS growth during the fiscal year.
Over the last year or two, we’ve often seen companies that report lower revenue get hurt a bit in the market. That means if revenue falls, investors might want to consider checking closely to see if ORCL had a corresponding cut in expenses during the quarter. Or, if expenses grew, can the company really justify that growth? ORCL is a major player in cloud computing, a sector that’s seen growing competition lately. The company’s earnings could give investors a bit more insight into whether slowing international growth and tariffs might be affecting that industry.
Rough Spring For Ag Market: Has the spring weather been disappointing? Think of the Midwest farmer. U.S. farmers are expected to harvest the smallest corn crop in four years, according to the U.S. Department of Agriculture. The USDA recently reduced its planting estimate by 3.2% from May and its yield estimate by 5.7%, CNBC reported.
Though you may not trade corn and soybean futures, the flooding that’s hurting farmers might also hurt some of the companies that depend on farmers for revenue. Seed companies come to mind, though the name of one might not be familiar. Corteva (CTVA) is the agricultural spin-off of the former DowDupont (DWDP), and became a public company on June 3. After a nice jump on its first trading day, the stock has fallen 7%. Farm equipment maker Deere (DE) is another company that analysts think might suffer if this bad spring weather leads to poor crops. Shares of DE fell sharply in May but have bounced back a bit since and are roughly flat year-to-date.
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