S&P 500; US Indexes Fundamental Daily Forecast – Strong Earnings, Energy Sector Surge Behind Current Strength

The major U.S. stock indexes closed mixed on Wednesday with the benchmark S&P 500 Index and tech-driven NASDAQ Composite posting gains while the blue chip Dow Jones Industrial Average struggled before settling lower.

In the cash market, the S&P 500 Index settled at 2708.64, up 2.25 or +0.08%. The NASDAQ Composite closed at 7296.73, up 15.63 or +0.21%. The Dow Jones Industrial Average finished at 24748.07, down 38.56 or -0.16%.

With concerns over geopolitical issues easing, the main focus was on earnings results. Earnings for the most part were impressive and supportive except for those of tech-giant IBM, which at one-time single-handedly took down all three major indexes shortly after the opening.

A sampling of Wednesday’s results showed rail transportation company CSX posting quarterly results that easily beat Wall Street estimates. United Airlines also posted better-than-expected results for the first quarter. Morgan Stanley reported a record profit and revenue for the first quarter.

IBM was a problem for the indexes on Wednesday. Although the technology company reported Tuesday earnings and revenue that topped analyst expectations, investors were left disappointed with the company’s forward-looking guidance. Shares of IBM fell 7.5 percent and had their worst trading day since October 24, 2014, when they dropped 7.6 percent.

Traders concluded that beating the top and bottom lines was impressive, but weak business metrics and guidance cannot be disappointing.

The markets were also boosted by an impressive performance in the energy sector which rose sharply on the back of a strong rally in crude oil futures. The Energy Select Sector SPDR Fund (XLE) rose 1.6 percent and posted its first four-day winning streak since late December.

In other news, the Fed said in its latest Beige Book the U.S. economic outlook remains positive, but noted that steel prices are rising due to the Trump Administration’s new tariffs.

Forecast

In the absence of any major geopolitical events, sentiment in the stock market on Thursday is widely expected to be driven by earnings results.

The corporate earnings season is helping to guide the indexes higher with its strong start. According to Thomson Reuters I/B/E/S, 79 percent of the S&P 500 companies that had reported through Wednesday morning surpassed earnings expectations. Meanwhile, 83 percent of those companies topped sales estimates.

With energy and industrial metals heating up, commodity sector stocks could also carry the market higher.

Economic data includes the Philly Fed Manufacturing Index, Weekly Unemployment Claims, the CB Leading Index and three Fed speakers. However, the price action is likely to remain earnings driven.