Article published at 9:45 a.m. CT
JJ Kinahan is Senior Vice president, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- WTI Crude prices jump to $80-plus per barrel
- IBM shares tumble 24%
- CPI results reflect lower prices at the pump
We could be in for a trading whirlwind as a slew of earnings and news – particularly updates on the growing conflict situation in the Middle East – surface as the day and week unfolds.
WTI crude prices are surging again today into the $80-per-barrel territory, following yesterday’s 9.4% vault – the largest one-day advance in three months – as investors react to more oil disruptions. The quandary over whether the Strait of Hormuz is open or closed continues as the U.S. and Iran remain in a standoff over which country controls it. Traffic is at a near-complete standstill, according to published reports.
Meanwhile, the U.S. launched airstrikes on Iran again yesterday, and Iran responded accordingly, a sign of aggressive conflict after peace talks between the U.S. and Iran crumbled.
As oil prices continue to escalate, so do energy shares. ExxonMobil, Valero, Chevron and ConocoPhillips are all trending higher, some more notably than others.
The major indices were tracking higher in early trading but barely off the flat line after the Bureau of Labor Statistics reported the Consumer Price Index (CPI) fell to 3.2%, lower than expected and especially compared with last month’s 4.2%. The CPI headline was the largest one-month decrease since April of 2020, according to the BLS. Much of that was tied to the drop in oil prices, which led to pullbacks in prices at the pump. That could be at risk given what’s happening with crude oil prices this week.
The S&P 500 Index edged higher by 0.14%, the Dow Jones Industrial Average moved slightly lower by 0.11% and the Nasdaq Composite was up by 0.55%. Yesterday, the Nasdaq gave up 1.4% while the S&P 500 backtracked by 0.74% and the Dow by 0.33%.
Among the biggest drags on the Dow are shares of IBM, diving some 24% after the technology firm surprised traders by warning it will miss earnings and revenue expectations as customers shifted spending to servers, storage and memory as supply tightens amid AI expansion.
“These conditions require our teams to execute perfectly, and this quarter we faltered,” Chief Executive Arvind Krishna said in a statement. “We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.”
For perspective on this pullback, shares are tracking toward their largest one-day drop in nearly 40 years, following their near 28% drop on Black Monday on Oct. 19, 1987. IBM will report final results next week, with the firm adding that final numbers “could be slightly different.”
Tech stocks could be in play again today as investors reconsider whether the huge amounts of spending on AI are going to be financially worth it down the road. SK Hynix shares took a tumble yesterday, sending other chip stocks downward. SK Hynix shares lost more than 9% at the close Monday, but switched gears in the early going today, up nearly 11%
In an emerging rollercoaster pattern for chip stocks, most were up strong in early trading, reversing course from yesterday. Sandisk added 7.2%, Western Digital up by 5.9%, Micron by 5.3% and Seagate higher by 5.1%.
Bank stocks were mostly mixed in early trading after the five biggest banks kicked off the earnings season with strong results.Goldman Sachs, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo reported robust results that soundly outpaced Wall Street expectations. The healthy results were mostly buoyed by huge investment banking fees, much of it tied to the likes of mega initial public offerings such as SpaceX and others.
This sets a good tone for earnings season, but considering that trading among bank stocks is mixed after most started in the red, sustainability is at question.
JPMorgan Chief Executive Jamie Dimon struck a cautious tone in his statement accompanying the firm’s results: “Several risks are shifting below the surface like tectonic plates, including geopolitical tensions and wars, sticky inflation, large global fiscal deficits and elevated asset prices,” he said. “They may remain manageable, but they could also cause meaningful disruptions when they shift or collide.”
Stay tuned.
Happy trading!
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