For a change, investors aren’t having to count on tech stocks to deliver the goods. The S&P 500 Index (SNPINDEX: ^GSPC) gained 27 points, up 0.8%, on Oct. 8. The Technology Select Sector SPDR ETF (NYSEMKT: XLK) gained 0.5%, while the Energy Select Sector SPDR ETF (NYSEMKT: XLE) surged 4.1% higher on another strong day for crude oil. IBM (NYSE: IBM) was the sole tech giant to have a big day, with shares gaining over 5% on news it was going to spin off part of its business.
Utility and real estate stocks, segments that usually do well in a recession but have underperformed in a 2020 that’s been anything but usual, also finished up today. Every stock in both sectors closed higher, with DTE Energy (NYSE: DTE) up 6.3% and Iron Mountain (NYSE: IRM) up 4%, leading the way.
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Is oil back? Investors are behaving that way
After falling sharply on supply/demand worries and the Friday announcement that President Donald Trump was diagnosed with COVID-19, West Texas Intermediate crude oil futures have surged from a low of $37 to today’s price above $41 per barrel.
Big Oil won big today, with Occidental Petroleum (NYSE: OXY) up 8.8% and Halliburton (NYSE: HAL) up 7.4%, two of the S&P’s biggest gainers. More than half of today’s biggest gainers in the index operate in the oil patch, including global giant ExxonMobil (NYSE: XOM), which added 5.3% and reclaimed its place as the biggest of the U.S. big oil companies, only a day after temporarily falling behind Chevron (NYSE: CVX) in market cap size.
Today’s move higher for the oil sector came on a combination of things behind crude oil’s move higher. To start, oil prices are moving up on worries about oil and refinery production in the Gulf of Mexico and on the U.S. Gulf Coast, with Hurricane Delta expected to make landfall on the Louisiana coast on Friday.
Additionally, the U.S. Energy Information Administration’s weekly petroleum status report, released yesterday, offered some reason for optimism. U.S. oil inventories held steady, an important measure as demand falls coming out of the peak summer demand season. Refinery activity increased slightly last week, while net petroleum products exports increased almost 10%, a sign that global demand could be ticking higher.
Add today’s report from OPEC to the mix, projecting global oil demand will grow for another two decades, and oil investors jumped back into the oil patch with both boots today.
Whether the industry is back on solid footing or not remains to be seen. Global demand is still down some 9 million barrels per day, and the risk for private oil companies is that state-controlled oil giants in OPEC, along with Russia, will use their pricing power to keep U.S. shale producers down while they’re on the mat.
Big Blue has investors seeing green
Investors spoke with their wallets today, sending shares of IBM 6% higher after it announced a plan to spin off its managed infrastructure services business into a separate company by the end of next year. The new business, according to IBM, would be the largest provider of managed infrastructure services in the world, and will be spun out to shareholders in a tax-free distribution.
Why the excitement? The post-spinoff IBM will remove the overhang of its legacy and highly cyclical operations, and become focused on the high-growth cloud computing market, and the recurring (and high-margin) revenues it generates.
Will this finally turn IBM into the market-beating stock investors have been expecting since it made the pivot to services? Management has a complex spinoff to execute first…
Strong day for “safe” stocks
The Real Estate Select Sector SPDR ETF (NYSEMKT: XLRE) and Utilities Select Sector SPDR ETF (NYSEMKT: XLU) are still 11% and 12% below their pre-COVID crash highs, not a typical performance for these sectors, which generally deliver steady, predictable cash flows and dividends that investors flock to during economic downturns. The broad impacts of lockdowns on economic and industrial activity in the second quarter affected both industries, and investors have been slow to return to either sector.
Today both saw solid gains, though there’s no clear reason why. It’s likely some of the recent gains both have enjoyed are the result of a more favorable shift in sentiment. Record-low interest rates are making both sectors, with their above-average dividend yields, more appealing to conservative investors looking for income and lower volatility.
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