Chart Advisor: Small-Cap Surge

Monday, 1st November, 2021

1/ Russell 2000 outpaces the other benchmarks

2/ Exxon Mobil rides energy tide higher

3/ Can Pfizer grow that fast?

4/ The bottom line

1/ Russell 2000 Outpaces the Other Benchmarks 

Major indexes claimed new highs to open the month of November, which is historically the best month of the year for the stock market. After opening to a new high, State Street’s S&P 500 Index ETF (SPY) and Dow Jones Industrial Average ETF (DIA) pulled back slightly, adding 0.2% and 0.25%, respectively. Buying accelerated into the close for Invesco’s Nasdaq 100 ETF (QQQ) as the ETF gained 0.3%. The small-cap index  iShares Russell 2000 ETF (IWM) led major averages, rising 2.6%. 

Ahead of a slew of economic reports at the end of the week, investors will be keeping an eye on the Federal Reserve’s Open Market Committee statements on Wednesday. It is speculated that the central bank will announce that it will begin tapering its $120 billion per month in bond purchases as the U.S. economy shows growing strength coming out of both the COVID-19 pandemic and third-quarter earnings season.  

As major averages have recorded new highs, the small-cap focused IWM has appeared relatively range bound, until today. IWM broke out to the upside and is sitting on the precipice of a new high. Major averages have been driven by overall strong third-quarter earnings results, which had yet to translate to a rise in IWM. With many small-cap stocks yet to report earnings for the quarter, this could mean that investors continue to see upside growth potential for the economy.  

2/ Exxon Mobil Rides Energy Tide Higher 

Investors have bid up the share prices of Exxon Mobil (XOM) after the company beat expectations for the fiscal third quarter. Analysts had forecast XOM to announce $1.47 in earnings per share (EPS) and $69.0 billion in revenue. The energy giant beat both metrics, reporting $1.57 in EPS and $73.8 billion in revenue. The EPS beat represents a sharp turnaround from Q3 2020’s $0.15 loss per share, and revenue has rebounded off last year’s pandemic-depressed levels.  

The chart below compares the recent performance between XOM and State Street’s Energy Sector ETF (XLE). XOM accounts for more than 22% of XLE’s holdings, but the sector ETF is outperforming XOM by more than 5% over the last three months. Increasing oil and natural gas prices hover near record highs as the oncoming winter could increase usage across American households. However, a rising tide lifts all ships, as both XLE and XOM have experienced a recent upward trend.  

3/ Can Pfizer Grow That Fast? 

Pfizer (PFE) will announce fiscal third-quarter earnings results Tuesday, before the market opens. Analysts are expecting the pharmaceutical giant to report $1.03 in EPS and $21.9 billion in revenue for the quarter. Analyst expectations represent the fastest rate of EPS and revenue growth in the past 15 quarters, likely driven by sales of its COVID-19 vaccine.  

Shares of PFE remain in an above average range, having recently reversed a downward trend to trade over its 20-day moving average. This could represent growing investor optimism toward PFE’s earnings report. After last quarter’s earnings, PFE shares rose more than 3% the day earnings were announced and continued rising to an all-time high in August. Investors could be anticipating a similar movement in PFE share price. 

Option traders appear to be anticipating positive earnings, as there are over 1.7 million call options in the open interest for PFE compared to 866,000 puts. Recent trading volumes on Monday favor calls over puts at more than 3-to-1.  

4/ The Bottom Line 

Small-cap stocks beat previous highs and joined the other benchmark indexes in their recent upward trends. Exxon Mobil beat expectations and tested previous highs. Pfizer preps for earnings news tomorrow. 

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Originally posted on 1st November, 2021