Stocks shot higher again this morning as the market hit new highs. Strong earnings and economic data prodded bulls, signaling that America’s post-Covid recovery might be going better than expected.
The Commerce Department reported this morning that retail sales surged by 9.8% in March, helped along by government stimulus. It’s not where the cash was necessarily meant to go, but nonetheless, retailers were more than happy to accept. Dow Jones-polled economists only predicted an increase of 6.1% by comparison.
Last week’s first-time unemployment filings, also revealed today, boosted stocks as well. The Labor Department found that initial jobless claims fell to their lowest level since March 2020, coming in at 576,000. Economists expected a total of 710,000.
Making matters even more bullish was the latest crop of earnings reports. Citigroup (NYSE: C) beat analyst estimates as did UnitedHealth (NYSE: UNH). PepsiCo (NASDAQ: PEP) impressed, too, outpacing quarterly profit expectations.
Over the last few days, we mentioned that another blast higher – on the back of strong earnings – seemed likely despite the market looking severely overbought.
Today, that’s starting to happen. And the rally could continue as institutional investors double down on their enthusiasm.
“I am incredibly bullish on the markets, and you are right to be worried about our deficits,” said Larry Fink, BlackRock CEO.
“If we don’t have economic growth that is sustainable over the next 10 years – our deficits are going to matter and they are going to elevate interest rates […] I believe because of monetary stimulus, fiscal stimulus, cash on the sidelines, earnings, markets are okay. Markets are going to continue to be stronger.”
In other words, everything else might be going to hell but at least investors should be okay.
For traders looking to buy additional shares, though, the selection currently appears quite limited. Most sectors have already erupted. The tech “rocket ship” could peak at a moment’s notice. That makes going long on the market’s top risers a precarious affair.
One sector, however, is lagging behind despite being a leader on the year. And it might also be giving investors a buy signal now that it’s cooled off.
Energy stocks have done outstanding in 2021, but since topping out in mid-March they’ve stalled. The SPDRs Select Sector Energy ETF (NYSE: XLE) almost broke out back in late March but ultimately set a level of key resistance (yellow line). Energy ran right into resistance again a few days later on April 1st before chopping indiscriminately for several days.
Now, though, with the rest of the market soaring, the energy sector looks to be generating positive momentum. As shown by the XLE, it’s down today, but a breakout past resistance might just confirm another energy rally.
In addition, the sector set a double bottom – a bullish reversal formation – over the last 14 trading days. If it can stay above that double bottom, a major recovery seems inevitable.
That’s not guaranteed, mind you. A breakout below the double bottom could just as easily result in an energy sector rout.
For the time being, though, energy stocks may be offering investors the best value. Buying right now may be a little premature, but if resistance is broken, look out.
Because what comes next could put energy stocks back on top, along with traders who took a shot on the sector before it really got going.
