Wall Street started the week on a shaky note as the 10-year Treasury yield hit its highest point in more than three years, but stocks’ difficulties were limited to mild declines.
Monday’s session saw the yield on the 10-year T-note climb to as high as 2.884% – a rate last seen in December 2018 – before easing a hair, to 2.866%. That spooked equity traders early, though BlackRock Investment Institute strategists say stock prices have already priced in rapid rate hikes by the Federal Reserve.
“We believe fears about a further downdraft in equities are overblown,” they say. “The rate hikes we expected are happening faster, but we don’t see central banks raising policy rates beyond neutral levels that neither stimulate or restrain the economy.”
Bank earnings were also front and center Monday amid what so far has been a lousy Q1 earnings season for the broader financial sector.
“Financials had the weakest start of earnings since 1Q20, with just 36% of the 11 companies that reported beating on both sales and [earnings per share] so far (40% beat last quarter after Week 1),” say BofA Securities strategists Savita Subramanian and Ohsung Kwon.
Bank of America (BAC, +3.4%) headed higher as better credit quality among its borrowers translated into a modest 1.8% revenue improvement to $23.3 billion and a 12% profit decline to 80 cents per share – both ahead of Wall Street’s estimates.
However, Bank of New York Mellon (BK, -2.3%) also reported a double-digit profit decline (11%) that topped expectations but its stock was dragged lower. And Charles Schwab (SCHW, -9.4%) was the S&P 500’s worst performer after higher expenses weighed on profits and caused it to miss the mark on both the top and bottom lines.
The Dow Jones Industrial Average (-0.1% to 34,411), S&P 500 (off marginally to 4,391) and Nasdaq Composite (-0.1% to 13,332) all traded similarly throughout the day, floating between positive and negative territory before finishing slightly lower.
Other news in the stock market today:
The small-cap Russell 2000 declined 0.7% to 1,990.
Gold futures edged up 0.6% to finish at $1,986.40 an ounce.
Bitcoin managed to get back above the $40,000 mark, rising 2.5% to $40,756.73. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.
Synchrony Financial (SYF) rose 6.2% after the credit card provider reported earnings. In the first quarter, SYF recorded adjusted earnings of $1.77 per share and net interest income of $3.79 billion, higher than the $1.73 per share and $3.76 billion analysts were expecting. The firm also boosted its stock buyback program by $2.8 billion and hiked its quarterly dividend by 5%. Still, CFRA Research analyst Alexander Yokum maintained a Hold rating on SYF stock and lowered his price target by $3 to $40 – about in line with where shares closed today.
UBS Global Research analyst Myles Walton downgraded United Airlines (UAL, -2.6%) to Neutral (Hold) from Buy. “Although we see strong pricing in the second quarter and beyond, the operational picture could be less smooth for UAL as they adapt to an aggressive growth strategy,” Walton says. Several other travel-related stocks closed lower today, too, including American Airlines Group (AAL, -2.4%), Southwest Airlines (LUV, -1.1%) and Carnival (CCL, -2.7%).
Another Big Day for Energy
Monday’s top-performing sector is certainly starting to become familiar with the winner’s circle. The likes of Marathon Petroleum (MPC, +3.3%) and Phillips 66 (PSX, +5.2%) helped keep energy stocks (+1.5%) way out in front in 2022, buoyed by a 1.2% rise in U.S. crude oil futures to $108.21 per barrel.
Indeed, the energy sector has now raced to a 46% gain so far in 2022, more than 40 percentage points ahead of the next closest sector (utilities, +5.8%) and far better than the 7.8% loss in the S&P 500.
An anticipated “return to normal” in global travel as summer starts to near, as well as a drastic reshaping of global oil supplies thanks to Russia’s invasion of Ukraine, have driven U.S. crude prices up well more than 40% in 2022 alone – in turn lifting all parts of the sector, from refiners to pipeline master limited partnerships (MLPs).
Now, while it’s fair to argue that the easy money has likely been made in the energy sector, that doesn’t mean all the money has been made. Despite the sector’s torrid run, analysts see upside of at least 20% in a number of the sector’s shares.
Read on as we look at five oil and gas stocks that still command a large number of analysts’ Buy ratings, as well as lofty price targets suggesting even more gains ahead.