Energy stocks surge as US oil tops $US70 a barrel

Energy stocks surged then eased back on Wall Street after US oil prices broke above $US70 a barrel for the first time since 2014.

Oil prices have risen more than 10% in the past month as US President Donald Trump has indicated a withdrawal from the 2015 international agreement with Iran. He has brought forward a deadline for a decision to tomorrow (NZ time).

US light, sweet crude for June delivery rose 0.8% to $US70.29 a barrel. Brent, the global benchmark, gained 1% to $US75.60 a barrel.

At the close, the Dow Jones Industrial Average advanced 93.98 points, or 0.4%, to 24,356.49. The S&P 500 rose 0.3% to 2672.58, returning to positive territory for the year, while the Nasdaq Composite added 0.8% to 7265.21.

Technology shares rose for the third straight day and were also some of the biggest winners.

Apple shares traded at a record high before closing at a gain of 0.7%. It unveiled a $US100 billion stock buyback last week. And was given a further boost when Warren Buffett revealed Berkshire Hathaway had increased its large stake in Apple by 75 million shares in the first quarter.

Amazon.com rose 1.2% to a record high of $US1600.14 a share.

Nvidia stock gained 4.3% after the Wall Street Journal reported that China was poised to announce a new fund to drive development of its semiconductor industry.

The market’s rise follows Friday’s jobs report that showed unemployment in the US fell in April to one of the lowest levels since World War II.

“We still remain pretty bullish and favourable to higher equity prices this year,” says Jim Lubin, chief executive officer of Beacon Hill Private Wealth Management.

He says he has used recent dips as a buying opportunity and remains optimistic about sectors such as technology.

The downside of higher oil prices is that they could push inflation higher.

“It creates a little more volatility,” says Omar Aguilar, chief investment officer of equities at Charles Schwab Investment Management.

Rising US Treasury bond yields helped send the sharemarket into correction territory in early February. The 10-year bonds have breached 3% in recent weeks.The yield settled at 2.950% compared with 2.946% on Friday.

The US currency is also continuing to rise. The WSJ Dollar Index, which tracks the greenback against a basket of 16 currencies, has had its best three weeks since the period immediately after President Donald Trump’s election win in late 2016.

Starbucks sells brands to Nestlé
In corporate news, Starbucks fell 0.4% after selling the rights to its coffee and tea in grocery and retail stores to Nestlé for more than $US7 billion. This will give Nestlé a bigger stake in that market without having to introduce a new brand to US consumers.

Starbucks is pinning its future on its shops rather than the consumer packaged goods business, which generates just 8% of its total revenue.

It has recently opened higher-end stores under brands called Roastery and Reserve to compete with independent coffee shops and small chains. There are nearly 33,000 coffee shops in the US, up 16% from five years ago.

Nestlé shares rose 1.1% in Switzerland.

As earnings season winds down, analysts are also focused on progress in trade negotiations between China and the U.S.

“The market is caught between the opposing forces of good economic fundamentals and geopolitical uncertainty,” says Philippe Gijsels, chief strategy officer at BNP Paribas Fortis.

“The situation is not likely to last for a long time, we are likely to see a break out either way sometime this week,” he says.

On the international scene, fund managers are looking for any hints on how the European Central Bank plans to wind down its monetary stimulus package.

The Stoxx Europe 600 rose 0.6%. France’s CAC 40 rose 0.3% and Germany’s DAX was up 1.0%. UK markets were closed for a holiday.