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US Stock Market Overview – Stock Rally Led by Energy; Oil Inventories Decline

Mortgage applications rise
David Becker

US stocks moved higher on Wednesday, as better than expected financial results from some of the major retailers like Target (TGT), buoyed shares. All sectors in the S&P 500 index were higher led by Energy which rallied on the back of a surge in oil prices. The Fed meeting minutes were released for April which showed that central bankers were nervous as uncertainty remained pervasive. As far as other specific threats, the Fed said that the banking sector could be vulnerable along with the potential for bankruptcies from nonfinancial companies. The Energy Department reported a larger than expected draw in US oil inventories, as well as an uptick in gasoline demand and lower US domestic oil production.

The Fed Meeting Minutes

The Fed in its meeting minutes from April 29, showed that central bankers believed that in addition to weighing heavily on economic activity in the near term, the economic effects of the pandemic created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term. The Fed had already cut rates to zero and had unleashed an unlimited QE which is still in effect.

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Mortgage Applications Rise

It appears that low rates are attracting plenty of home buyers. Mortgage applications to purchase a home rose 6% last week from the previous week, according to the Mortgage Bankers Associations. The purchase volume was just 1.5% lower than a year ago. Despite the loss of 36-million jobs over the past week, historically low rates is presenting an opportunity for buyers.

Oil Pulls Energy Shares Higher

An unexpected draw crude oil inventories pulled prices higher and helped buoy energy shares. The EIA reported that US crude oil stockpiles decreased by 5.0 million barrels from the previous week. At 526.5 million barrels, U.S. crude oil inventories are about 10% above the five year average for this time of year. Gasoline inventories increased by 2.8 million barrels last week. Total commercial petroleum inventories increased last week by 5.0 million barrels.

Gasoline demand is getting better.  Over the past four weeks, gasoline demand averaged 6.7 million barrels a day, down by 29.1% from the same period last year. This is up from down more than 40% 3-weeks ago.

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