Closing Market Summary: Stocks Erase January Losses
The S&P 500 spiked 1.7% on Thursday, continuing its rebound that began on Wednesday when the index found support at its 100-day moving average (2005). Today, the benchmark index surged past its 50-day moving average (2044) and returned to unchanged for the year. The Nasdaq Composite had an even better showing, surging 1.8%.
Equity indices didn't waste any time after yesterday's rebound, extending higher in the futures market in reaction to evening comments made by Chicago Fed President, and more importantly, 2015 FOMC voting member Charles Evans. Presenting at the University of Chicago, Mr. Evans reiterated his belief that due to low inflation, the Fed should not rush to raise rates, adding for good measure that such move would be a "catastrophe."
Interestingly, Fed insider Jon Hilsenrath of the Wall Street Journal wrote this morning that the Fed could indeed raise rates soon if it is believed that low yields at the long end of the curve reflect an influx of capital into dollar-denominated assets, which could spark a surge in prices. Mr. Hilsenrath added that this was the view espoused by NY Fed President and this year's voting member William Dudley, who argued a similar situation presented itself in 2000s, leading to the housing bubble.
The signs of an impending tug-of-war at the Fed over when to pull away the punchbowl did not stop the stock market from spiking out of the gate and adding to its advance in afternoon action. Meanwhile, Treasuries retreated, sending the 10-yr yield higher by six basis points to 2.01%.
All ten sectors finished the day in positive territory with cyclical groups pacing the rally. The materials sector (+2.4%) ended atop the leaderboard, but more notably, the technology sector, which is roughly six times the size of materials, jumped 2.2%.
The largest sector by weight enjoyed broad-based support. Apple (AAPL 111.89, +4.14) spiked 3.8%, buoyed by reports of strong sales in China. Other influential sector members also posted impressive gains with Facebook (FB 78.18, +2.02), Hewlett-Packard (HPQ 40.68, +0.95), and Microsoft (MSFT 47.59, +1.36) soaring between 2.4% and 2.9%. Even Google (GOOGL 506.91, +1.76) was able to end in the green after being down as much as 1.5% after Stifel downgraded the stock to ‘Hold.' However, the relative strength was not isolated to large names. Chipmakers rallied across the board with the PHLX Semiconductor Index advancing 2.9%.
The combination of unwavering strength among technology stocks of all sorts helped the Nasdaq Composite finish ahead of the S&P 500 even though biotechnology struggled to stay in the green. The iShares Nasdaq Biotechnology ETF (IBB 314.44, +2.44) gave up most of its opening gain during the first hour and flirted with its flat line, but still ended higher by 0.8%. For its part, the health care sector (+1.7%) settled in-line with the S&P 500.
Like health care, the remaining countercyclical sectors finished in-line with or just behind the broader market. Consumer staples (+1.5%) and telecom services (+1.7%) spent the day just behind the S&P 500 while utilities (+0.7%) underperformed amid the increase in Treasury yields.
Elsewhere, the energy sector (+2.2%) was able to finish among the leaders even though crude oil remained on slippery footing. The energy component crept above the $49.50/bbl level overnight, but was beaten back to its flat line. The commodity was down in excess of 1.0% intraday, but fought back to a slim gain of 0.2% at $48.80/bbl.
Today's participation was in-line with average with 830 million shares changing hands at the NYSE floor.
Economic data was limited to Initial Claims and Consumer Credit:Tomorrow, the Nonfarm Payrolls report for December (consensus 245K) will be released at 8:30 ET while November Wholesale Inventories (consensus 0.3%) will be reported at 10:00 ET.
- Initial claims decreased to 294,000 from an unrevised 298,000 while the consensus expected a decline to 290,000
- Anecdotal reports of increased layoff activities in the energy sector due to low oil prices have not led to changes in unemployment insurance trends so far. That being said, we could see an uptick in claims in the coming weeks if fracking becomes unprofitable and energy companies continue slashing capital expenditure budgets.
- The continuing claims level increased to 2.452 million from a downwardly revised 2.351 million (from 2.353 million) while the consensus expected an increase to 2.365 million
- Consumer credit increased by $14.10 billion in November, down from an upwardly revised $16.00 billion (from $13.20 billion) in October. The consensus expected an increase of $15.0 billion
- For the last 12 months, consumer credit has increased by at least $10.00 billion per month
- Dow Jones Industrial Average +0.5% YTD
- S&P 500 +0.2% YTD
- Nasdaq Composite UNCH YTD
- Russell 2000 -0.7% YTD