The retail earnings parade continued Friday, but there was also some news from the fields, as Deere & Company DE reported stronger-than-expected results.
Deere's strong earnings continued a string of vigorous quarterly results this week, including from huge companies like Wal-Mart Stores, Inc. WMT and Home Depot Inc HD. Aside from earnings, the market seems to lack a catalyst. Oil prices have rallied sharply, but oil’s correlation with the stock market has fallen sharply from earlier this year, so the oil market isn’t having as much impact on stocks as it did back in January and February. And there’s no major economic data on Friday’s schedule. Stocks remain stuck in a narrow range amid low volatility.
Deere shares rose 5% in pre-market trading after DE posted earnings per share of $1.55, up 2 cents from a year ago and way above the Wall Street consensus of 94 cents. That was something of a surprise, as the farm economy remains weak. Sales fell from a year ago, but DE raised earnings guidance.
The huge agricultural equipment maker has been suffering the farm economy’s slump, and said its results reflect “the continuing impact of the global farm recession as well as difficult conditions in construction equipment markets.” The pressure comes from unusually strong crop harvests that have led to excess grain supplies and pushed down commodity prices. When prices for crops like corn and soybeans fall, as they have this summer, it can push down farmers’ demand for new equipment.
Other companies reporting early Friday included Applied Materials, Inc. AMAT, which beat expectations and saw shares rise in pre-market trading, as well as retailers Gap Inc GPS and Foot Locker, Inc. FL. Gap narrowly beat Wall Street’s earnings per share estimate, but same-store sales fell 2%.
Earlier this year, it sometimes seemed like the stock market was on set of strings controlled by oil prices. When oil prices rose, so did stocks. When they fell, it was often a bad day on Wall Street.
Lately, though, the corellation between equities and oil just hasn’t been so pronounced, and that’s evident in price action. Since the beginning of August, when nearby U.S. crude futures slipped briefly below $40 a barrel, crude oil has risen about 20% in a very quick rally, driven mostly by talk that major producers might agree to an output freeze. But the stock market, while certainly holding its own, is up just a touch since the oil market’s slide below $40 on Aug. 2. The S&P 500 Index (SPX) was at around 2170 at that point, and closed just above 2187 on Thursday. The corellation between the S&P 500 index (SPX) and oil is now below 70%, compared to highs above 90% last winter.
Oil futures came under a little pressure early Friday, but remained above $48 a barrel, a seven-week high. The question is whether the nearby futures contract can take out psychological resistance at $50 and then move toward the 2016 high around $53. U.S. weekly oil rig counts, due later Friday, could provide more clues into the production picture, as rig counts have been climbing most of the summer. Last week, U.S. oil rig count rose by 15 to 396 - the most since late February.
But rig count remains dramatically lower than a year ago, and U.S. oil production has fallen significantly from highs recorded in 2015. U.S. crude oil inventories sit at 521.1 million barrels, according to the Energy Information Administration (EIA), up nearly 65 million barrels from a year ago.
The yield on 10-year U.S. Treasuries was at 1.55% early Friday, up from lows last week below 1.5%.
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