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2 Bright Spots in Friday's Stock Market Downturn

By Dan Caplinger - Mar 5, 2021 at 11:57AM

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The sell-off continued, but not everything lost ground.

The stock market continued to lose ground on Friday morning, pushed lower in a phenomenon that's familiar to longtime investors. News that jobs growth was stronger than expected fed fears that the U.S. economy might actually bounce back too strongly from the COVID-19 pandemic. That could create inflationary pressures that in turn might destroy the underpinnings of the stock market's bullish advance. As of 11:15 a.m. EST, the Dow Jones Industrial Average (^DJI 0.03%) was down 94 points to 30,830. The S&P 500 (^GSPC 0.01%) had fallen 29 points to 3,739, and the Nasdaq Composite (^IXIC -0.30%) had lost another 257 points to 12,464.

However, not all stocks were victims of the ongoing rout among high-growth stocks. In the energy sector, there were several prominent oil stock winners on Friday. Moreover, in the hard-hit retail sector, Gap (GPS -2.32%) had news that sent its shares higher.

Another strong day for oil stocks

The energy sector performed well on Friday morning, buoyed by more price increases for crude oil. West Texas intermediate jumped almost $2 per barrel, climbing back above $65 per barrel and reaching levels last seen two years ago.

Crane, oil well, and drilling equipment near sunset.

Image source: Getty Images.

Those gains sent exploration and production companies higher. Diamondback Energy (FANG 0.35%) rose more than 4%, while Continental Resources (CLR 1.37%) gained 6%. Shares were volatile though, as Occidental Petroleum (OXY -1.09%) was up 3% after climbing as much as 9% earlier in the session.

Global supply dynamics are playing a key role in energy markets, as market watchers believe that OPEC nations might choose not to boost production despite the recent rise in crude prices worldwide. Moreover, the bitter cold weather that hit Texas and other oil-producing regions in the southern part of the U.S. have had short-term impacts, including production and refining halts that drivers are already seeing at the gas pumps.

Energy stocks were terrible performers in recent years when oil prices slipped to unsustainable levels. If crude can maintain current prices, however, it could help make many E&P companies profitable again, and that in turn could prompt further gains for stocks in the sector.

Climbing out of the Gap

Meanwhile, shares of Gap were up 5%. The retailer announced fourth-quarter and full-year results for 2020 that made investors feel more comfortable about its prospects for a further rebound in 2021.

Gap managed to keep comparable sales flat during the fourth quarter, as a 49% jump in online sales overcame a 28% fall in sales occurring within store locations. Total revenue was down 5%, with weakness at the Banana Republic and namesake Gap store concepts. However, Gap got good news from its Old Navy and Athleta stores, which saw considerable gains in sales.

Gap managed to contain its promotional discounting, which led to a rise of nearly 2 full percentage points in gross margin to 37.7%. Closing unprofitable stores in favor of its digital strategy helped to cut costs, helping Gap post positive earnings of $0.61 per share for the holiday period.

Investors also seemed pleased to see optimism in Gap's 2021 forecast, which includes earnings projections of $1.20 to $1.35 per share. Gap believes that sales should jump by percentages in the mid- to high teens, with the expectation that the pandemic will ease by the second half of the year.

Gap stock has bounced back sharply since the beginning of the pandemic, with shares now fetching almost five times what they did at their lowest levels a year ago. Yet if things truly get back to normal, the hard-hit retailer could have further to climb.

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Stocks Mentioned

The Gap, Inc. Stock Quote
The Gap, Inc.
$10.93 (-2.32%) $0.26
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,261.90 (0.03%) $8.77
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,901.36 (0.01%) $0.57
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$11,354.62 (-0.30%) $-33.88
Continental Resources, Inc. Stock Quote
Continental Resources, Inc.
$59.78 (1.37%) $0.81
Occidental Petroleum Corporation Stock Quote
Occidental Petroleum Corporation
$63.26 (-1.09%) $0.70
Diamondback Energy, Inc. Stock Quote
Diamondback Energy, Inc.
$130.28 (0.35%) $0.46

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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