What Happened?
A number of stocks jumped in the afternoon session after the Dow Jones Industrial Average retook the 50,000 level, driven by 'remarkably strong' corporate fundamentals and a breakthrough in U.S.-China relations.
President Trump and President Xi agreed in Beijing to ensure the Strait of Hormuz remains open, a critical win for global manufacturing supply chains choked by Middle East conflict. Also, April retail sales rose 0.5%, matching estimates and signaling that demand for industrial-produced goods remains stable. Industrial companies build the machinery and infrastructure that power the global economy.
While the 1.9% jump in import prices reported confirmed that manufacturing inputs were still more expensive, the reduction in geopolitical risk and the easing of the 10-year yield to 4.46% lowered the cost of the long-term debt used to finance these massive industrial projects.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Specialty Equipment Distributors company United Rentals (NYSE: URI) jumped 4%. Is now the time to buy United Rentals? Access our full analysis report here, it’s free.
- Engineered Components and Systems company Mayville Engineering (NYSE: MEC) jumped 0.5%. Is now the time to buy Mayville Engineering? Access our full analysis report here, it’s free.
- Gas and Liquid Handling company Flowserve (NYSE: FLS) jumped 2.9%. Is now the time to buy Flowserve? Access our full analysis report here, it’s free.
- Automobile Manufacturing company General Motors (NYSE: GM) jumped 2.6%. Is now the time to buy General Motors? Access our full analysis report here, it’s free.
- Renewable Energy company Bloom Energy (NYSE: BE) jumped 5.2%. Is now the time to buy Bloom Energy? Access our full analysis report here, it’s free.
Zooming In On Bloom Energy (BE)
Bloom Energy’s shares are extremely volatile and have had 90 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 29 days ago when the stock dropped 3% on the news that news of a potential Middle East ceasefire triggered a major shift in the stock market.
For weeks, investors held defensive and energy stocks during the conflict between the U.S. and Iran. With a peace deal being discussed, the risk of global supply chain issues decreased significantly. This caused oil prices to drop sharply, leading many traders to sell their defensive shares to lock in profits while the global situation stabilizes. Instead of holding onto traditional companies, investors rotated back into high-growth technology names.
Tech leaders like Broadcom and Tesla saw gains as the market's "fear index" hit a seven-week low. Analysts believed that a more stable global environment makes high-growth investments much more appealing than defensive industrial ones. Because of this rotation, the industrial sector trailed the rest of the market as buyers searched for bigger returns in the tech sector.
Bloom Energy is up 206% since the beginning of the year, and at $302.23 per share, has set a new 52-week high. Investors who bought $1,000 worth of Bloom Energy’s shares 5 years ago would now be looking at an investment worth $14,887.
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