Semiconductor stocks have had an interesting two days. On Thursday, seemingly the entire industry moved higher in anticipation of a strong earnings announcement from Intel Corporation (INTC) after the closing bell. Unfortunately, that did not happen.
Intel missed revenue estimates by $360 million and GAAP earnings estimates by $0.04 per share – coming in at $18.66 billion and $1.12 per share, respectively. As a result of the miss, Intel shares plunged lower in trading on Friday, dropping 5.47% to close at $47.04.
Interestingly, the rest of the industry kept right on climbing higher. Micron Technology, Inc. (MU) jumped 6.48%, Advanced Micro Devices, Inc. (AMD) rose 5.18%, Xilinx, Inc. (XLNX) bounced 4.06% and Qorvo, Inc. (QRVO) climbed 3.76%.
These bullish moves indicate that traders are confident enough in the sustained strength of the global economy and the potential of a softening in trade talks between the United States and China to shrug off the disappointing earnings news from a bellwether stock like Intel in favor of maintaining upside exposure to the technology sector, which many believe to be oversold.
Positive Surprise for S&P 500
The S&P 500 enjoyed two positive news surprises today. First, The Wall Street Journal reported this morning that the Federal Open Market Committee (FOMC) is weighing cutting off its quantitative tapering (QT) program earlier than anticipated. The QT program – the inverse follow-up program to the FOMC's quantitative easing (QE) program that is credited with helping lift the stock market in the early days of the last bull market – has been winding down the Fed's balance sheet by allowing its Treasury and agency mortgage-backed security (MBS) holdings to mature without reinvesting the proceeds into new assets.
Traders have been nervous that a dramatic winding down of the Fed's $4.5 trillion balance sheet could disrupt the markets and potentially affect economic growth. Cutting off the QT program earlier than expected would leave the Fed holding more on its balance sheet, which would put less strain on the Treasury and MBS markets.
Second, President Trump announced that he and Congress have reached an agreement to reopen the government for three weeks while they negotiate terms. This break in the stalemate not only makes it possible for federal workers to get paid but also tells Wall Street that there is still hope for a functioning federal government moving forward, even though control of Congress is split between Democrats in the House and Republicans in the Senate. Traders don’t mind some gridlock in Washington so long as the government is open.
Today's positive news sent the S&P 500 up to challenge its highs from last Friday, but the index was not able to break out of its consolidation range. Maybe more positive earnings announcements next week will be the catalyst traders need to resume the uptrend.
Risk Indicators Spark Volatility Hedging
Even though the stock market had a great day today and the CBOE Volatility Index (VIX) closed at its lowest level since Dec. 3 today, investors are still adding gold to their portfolios as a hedge against potential volatility and downturns in the future.
Gold prices jumped from $1,280 per ounce this morning to just above $1,300 this afternoon – giving the precious metal the highest closing price it has seen in seven months – as the value of the U.S. dollar (USD) pulled back. Because gold is priced in USD in international markets, the two assets have a strong inverse correlation.
Lower Treasury yields have also helped gold regain the value it lost from mid-June to mid-August 2018 as the stock market climbed steadily higher. Gold is a non-yielding asset – it doesn't pay a dividend or a coupon rate – and tends to perform better when it is not competing against Treasuries as a safe haven when Treasury yields are rising.
Seeing this movement tells me that traders are still seeking some protection for their portfolios just in case the stock market suffers a shock in the coming months.
Bottom Line: A Bullish End to the Week
This week started with Wall Street selling into strength. It ended with Wall Street pushing the S&P 500 back up toward where the index closed last week. This is a great sign for the potential of a prolonged bullish trend during the coming months. If the S&P 500 can close above 2,675.47 next week, it won't take much to climb back up to 2,800.
Enjoy this article? Copy and share the link below to invite friends to sign up for the Chart Advisor newsletter: