It’s back to business as usual.
After a little more than two weeks of sideways trading that included one eye-opening plunge last Friday, stocks exploded higher on Tuesday, attaining two key technical levels that makes further upside the default expectation.
The Dow Jones tacked on 148 points to close at 12,040, its first close above 12,000 since June 2008, the S&P 500 added 1.7% to close at 1308 and the Nasdaq jumped 1.9% to close at 2751.
Several reasons were tossed out in the media for Tuesday’s uber-rally: a strong ISM manufacturing index report and the possibility of easing tensions in Egypt being a couple of the most popular suggestions.
Both of these events, of course, do nothing but support the idea that discerning the reason for the stock market’s hourly or daily – or weekly – movements is next to impossible. As good a reason as any is that when an asset appreciates nearly 30% in almost five months, people tend to take notice and begin to think that they, too, should be buying.
In other words, why start now to suggest logical or fundamental reasons for the risk-on frenzy among investors?
The bulls’ rout of the bears on Tuesday was fairly impressive: advancers on the New York Stock Exchange bested decliners by about 5 to 1, while new 52-week highs beat new 52-week lows, 335-9.
Stocks of all sizes performed well, with small-caps outperforming the most.
If there was perhaps any notable sector strength it was in financials, showing again that a broad-based rally of any duration is only possible when the sector joins in. The Financial Select Sector SPDR (NYSE:XLF) exchange-traded fund was up more than 2% on Tuesday after trading virtually flat since Jan. 13. Bank of America (NYSE:BAC) had a particularly strong day, climbing 4.2% to $14.31.
Bonds again sold off, pushing the yield on the 10-year note to 3.45%, meaning the rest of the week will offer a test as to whether yields finally make the run toward 4% and beyond expected this year by many analysts.
Commodities finished mixed, with crude oil falling back under $91 after a huge move higher on Monday. Gold and silver were up modestly on a weaker dollar, while industrial commodities were the sector’s strength.
Cynics would point out that higher input (read: commodity) prices are likely to come home to roost one day in the form of lower corporate margins or inflation, or both. Eventually, the cynic would say, isn’t there a downside to corn spot prices rising 8%, rice jumping more than 10%, and cotton up nearly 20% in one month alone?
But like I said, why let fundamentals into it?