Major Moves

Microsoft Corporation (MSFT) vaulted into an elite group of stocks today as it crossed the $1 trillion market-cap threshold today. Only Apple Inc. (AAPL) and Amazon.com, Inc. (AMZN) have previously achieved this feat.

To put how impressive this is into perspective, if you were to compare MSFT’s market cap to the annual gross domestic product (GDP) of every country on earth, it would rank 17th in the world – right behind Indonesia and right before the Netherlands (according the International Monetary Fund's 2018 survey).

Microsoft cleared this monumental hurdle by jumping 3.31% Thursday after shattering Wall Street's revenue and earnings estimates when it released its numbers Wednesday night after the market closed. The company beat revenue estimates by $740 million and earnings estimates by $0.14 per share – coming in at $30.6 billion and $1.14 per share, respectively.

During the company's conference call, management further excited investors by stating that it expects double-digit growth in revenue and operating income for the fiscal year – an impressive accomplishment for a company that size.

Perhaps the most exciting thing about this bullish move is it shows there is still plenty of positive momentum left in certain segments of the economy – like technology investment – that could keep the market moving higher during 2019.

Performance of Microsoft Corporation (MSFT)

Nasdaq Composite and S&P 500

Had Microsoft and Facebook, Inc. (FB) – which rose 5.85% today after beating Non-GAAP earnings estimates by $0.27 per share – been the only S&P 500 component to report earnings within the past 24 hours, the index would likely be trading at new all-time highs.

Unfortunately for those looking for the index to break higher, the S&P 500 was weighed down by negative earnings surprises from 3M Company (MMM), United Parcel Service, Inc. (UPS) and Altria Group, Inc. (MO). 3M dropped 12.95% Thursday after missing earnings estimates by $0.27 per share, UPS fell 8.13% after missing earnings estimates by $0.04 per share and Altria gave up 6.03% after missing earnings estimates by $0.03 per share. Maybe tomorrow will be the S&P 500’s lucky day when it can finally break higher.

Luckily for the Nasdaq Composite, it didn't have to worry about 3M, UPS and Altria because they are all listed on the New York Stock Exchange (NYSE). This left the tech-heavy index free to run higher. The Nasdaq reached a new intra-day high of 8,151.8 before closing at 8,118.7.

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Performance of the Nasdaq Composite Index

Risk Indicators – The Crack Spread

The energy sector is experiencing some internal divergence between independent oil exploration companies and oil refining companies as the crack spread continues to widen. The crack spread tracks the difference between the price of the input in the oil refining process – crude oil – and the output of the process – gasoline.

When the crack spread gets narrower, it indicates that the price of crude oil is getting more expensive compared to the price of gasoline. Conversely, when the crack spread gets wider, it indicates that the price of crude oil is getting less expensive compared to the price of gasoline.

Currently, the crack spread is getting wider. This is great news for oil refining companies – like Valero Energy Corporation (VLO), HollyFrontier Corporation (HFC) and Marathon Petroleum Corporation (MPC) – because it means their profit margins are going to get wider as they pay a comparatively lower price for the crude oil they buy and can charge a comparatively higher price for the gasoline they sell.

A wider crack spread is not great news for independent oil exploration companies – like Apache Corporation (APA), Devon Energy Corporation (DVN) and Pioneer Natural Resources Company (PXD) – because it means the product they sell, crude oil, is not commanding as high a price.

If this divergence in performance continues as the crack spread widens, the energy sector may continue to lag the technology and financial sectors.

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Performance of gasoline crack spread futures

Bottom Line - Potential Everywhere

The S&P 500 is still consolidating just below its all-time high, but the index has plenty of potential to break higher. It looks like it might just take the right combination of earnings announcements – more earnings beats than misses – to push it over the edge.

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