Commenting on today’s trading focusing on the bounce in Treasury yields, Gorilla Trades strategist Ken Berman said:
Despite today’s broad rally, it’s too early to conclude that the pullback is over, even as the tech sector’s strength has to be a huge plus for bulls. U.S. stocks surged higher with the help of global risk assets today, even though the coronavirus continued to spread, and the fact that the leaders of the historic rally of the past few months lead the advance could mean that we will see new all-time highs very soon.
Q4 2019 hedge fund letters, conferences and more
The major indices staged a strong rebound today following their worst in over three months, with the Nasdaq leading the charge in the face of the lingering coronavirus fears and a mixed bag of corporate earnings. The Dow was up 187, or 0.7%, to 28,723, the Nasdaq gained 130, or 1.4%, to 9,270 while the S&P 500 rose by 33, or 1.0%, to 3,276. Advancing issues outnumbered decliners by a 3-to-1 ratio on the NYSE, where volume was slightly above average.
While the Dow has been under pressure throughout the day due to the weak earnings of 3M (MMM, -5.3%) and Pfizer (PFE, -4.9%), the Nasdaq and the S&P 500 had a very strong session. All of the key sectors closed in the green, and outside of the mighty tech sector, services, financials, and consumer goods were the strongest issues. Materials remained weak, despite the bounce in the price of oil and the global relief rally in risk assets, but the defensive utilities and healthcare stocks also gained ground as investors remained wary of a possible global epidemic.
VIX tanks
The much better-than-expected CB consumer confidence number, the sizable dip in the Volatility Index (VIX, -10.8%), and the bounce in Treasury yields all boosted investor confidence today. The durable goods report, on the other hand, raised questions about the recovery in the manufacturing sector, even as the Richmond Manufacturing Index blue away expectations. The key economic indicators continue to point to solid growth in the U.S., ahead of tomorrow’s Fed rate decision, but the effects of the epidemic in China could weigh even on domestic growth in the coming months.
Apple (AAPL, +2.6%) and Starbucks (SBUX, -0.2%) both reported earnings after the bell and both giants beat the consensus estimates on their top and bottom lines. Apple’s revenues and earnings were way above expectations in the face of the weak global economic growth and the tariff skirmish between the U.S. and China, confirming the strong holiday season in the consumer economy. The shares of both companies jumped higher in after-hours trading, and since iPhone sales were mostly behind Apple’s earnings beat, the whole tech sector could get another boost tomorrow.
The Fed’s announcement will likely steal the show tomorrow, but we will already have important economic releases coming out in the morning. Pending home sales, wholesale inventories, and the goods trade balance will all be out around the opening bell, while the energy sector might be in for another volatile session due to the weekly crude oil inventories data. While virtually all analysts agree that the Fed will keep its benchmark rate unchanged, the Central Bank’s economic outlook could still lead to wild swings in stocks and bonds tomorrow afternoon.
Treasury yields get bounce from volatile markets
Technical Corner. Although the advancing short-term trend is facing its biggest threat in several months, due to Monday’s steep selloff, the major indices continue to be bullish on all-time frames according to the most reliable trend indicators. The benchmarks remain well above their rising 200-day moving averages of 8,240 for the Nasdaq, 3,007 for the S&P 500, and 26,990 for the Dow, and the indices are also still above their steeply rising 50-day moving averages of 3,203 for the S&P 500, 8,898 for the Nasdaq, and 28,396 for the Dow.
The utilities sector, as measured by the popular XLU ETF hit new all-time intraday highs for eight sessions in a row before ‘only’ registering a fresh closing record high today. Treasury yields started to fall because of the standoff between the U.S. and Iran earlier this month, triggering a technical breakout in the sector, which is usually boosted by lower rates. The coronavirus outbreak further increased the buying pressure, and while the ETF is now slightly ‘overbought’, utilities could be in for another very strong year in the low-growth, low-yield environment. Stay tuned!
