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MSFT, MCD Shares Pop amid Strong Earnings but Major Benchmarks Sink

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October 21, 2016

(Friday Market Open) The markets were floating in a sea of red in the early going, even as positive earnings news streamed in that may eventually help them turn higher.

Microsoft (MSFT) shares jumped better than 6% in post-market trading last night and appeared to be holding those gains this morning after reporting Q3 earnings and offering upbeat guidance for Q4. The software giant handily beat Wall Street’s expectations for both sales and earnings with help from its cloud-computing business that includes its Azure services and Office 365 subscriber business. Sales more than doubled, which some analysts say may offer support that the emerging businesses may replace shrinking PC sales. If the stock gains hold above $60, MSFT shares will hit levels they haven’t seen since 1999. Yes, 1999, when the all-time high hit $59.56 before the dot-com bubble burst.

Who says consumers aren’t spending and eating out? McDonald’s (MCD) shares popped in early trading too after the burger behemoth also outpaced Wall Street’s Q3 forecasts and the year-ago results. Global same-store sales climbed 3.5%, and were up 1.3% in the U.S.

What happened to that correlation between the S&P 500 (SPX) and crude oil? Oil futures flipped into positive territory suddenly this morning, reversing a two-day slump that started after oil prices hit a three-month high. More talk from Russian officials may have sparked the move higher, according to published reports. (More below.) West Texas Intermediate (CLX6) futures were edging toward $51 a barrel, a key level. But the SPX was marginally lower. Might more upbeat earnings news turn that around? Time will tell.


S&P 500

FIGURE 1: BARELY BUDGED.

The S&P 500 (SPX), plotted here through Thursday's close on the TD Ameritrade thinkorswim® platform, lost some traction in trading that left it just a smidgen below its 100-day simple moving average. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Dollar Climbs Again. The ICE U.S. Dollar Index (DXY) edged higher to 98.53 today as the euro fell to a seven-month low against the greenback. The rise appeared to be tied to comments European Central Bank President Mario Draghi made about extending the ECB’s bond-buying program, according to published reports. The euro-dollar currency pair is the world’s most heavily traded one.

Oil’s Flip-Flop. West Texas Intermediate crude oil prices (CLX6) flipped to the upside abruptly this morning in what appeared to be positive reaction to a Russian energy minister’s reported suggestion that the country might, after all, support efforts to curtail oil production. On Thursday, prices fell again, potentially fueled by a Russian oil company executive’s comments that his country has the capacity to up oil production as high as 4 million barrels a day, which may help it exceed its historic high average of 11.2 million a day in September, according to published reports. That put Russia in the top spot of the world’s biggest oil producer.

Russian energy minister Alexander Novak was reported saying he was heading to Saudi Arabia to knock out some proposals before his Monday meeting with the Secretary General of the Organization of the Petroleum Exporting Countries. Analysts say the move may be a big step toward stabilizing the global oil glut. Whatever it is, oil traders appear to be sensitive to any comments about oil production out there, given their ups and downs in such a tight range.

Smoking Hot? Reynolds American (RAI) acknowledged Friday that British American Tobacco (BAT) has made a $47 billion takeover offer to buy up the 58% of shares it doesn’t already own of the U.S. company. RAI shares climbed on the news. Such a blockbuster consolidation would bring together the makers of Lucky Strike and Camel.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: NEXT WEEK'S ECONOMIC CALENDAR

There are no major economic reports scheduled for today. 

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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