The bulls were large and in charge on Tuesday as investors ignored renewed weakness in crude oil and a worsening situation in Ukraine to bid stocks higher ahead of Wednesday’s big Eurogroup meeting at which Greece’s proposal to renegotiate its bailout program will be discussed.
In the end, the Dow Jones Industrial Average gained 0.8%, the S&P 500 gained 1.1%, the Nasdaq gained 1.3%, and the Russell 2000 gained 0.6%. Apple, Inc. (NASDAQ:AAPL) was the day’s highlight as the heavily weighted component jumped 1.9% to a new record high on enthusiasm over the company’s new bond issue denominated in Swiss francs, pushing its market capitalization past $700 billion for the first time ever.
Crude oil ended a three-day winning streak by dropping 5.4% to close at $50.02. This after the black stuff was hit by an International Energy Agency report that oil prices would remain under pressure as the impact of relatively modest capital expenditure cuts would take time to translate into actual production cuts.
In London, the CEO of independent oil trader Vitol warned that oil prices would resume their downward slide as long as U.S. crude inventories remained near 80-year highs — dismissing the focus on falling U.S. oil rig counts that were used as justification for a recent firming in prices.
In addition to lower oil prices and all that those entail, stock bulls also looked past a build in business inventories and Chinese deflation data. However, in their favor was a solid report on job openings (at more than 5 million, the highest level since 2001) and hiring adding further evidence that the labor market enjoys some serious momentum.
And while wage gains have yet to really accelerate, something known as the Beveridge Curve — which economists use to measure how efficiently applicants and job openings are matched — suggest structural frictions are about to boost them in a big way.
This is backed up by data from business surveys — such as the NFIB survey — showing employers are having a tough time filling positions and are preparing for pay raises to keep their workers and attract new ones. The “Jobs Hard to Fill” subindex has, in fact, dropped near 2007 lows.
Back to Europe. The Greek government unveiled a four-part proposal today asking for a bridge loan (to address near-term liquidity issues) and debt swaps (to cut its long-term debt-to-GDP ratio to sustainable levels) in exchange for a batch of new structural reforms and a pledge to stick to 70% of its current bailout program.
This, along with a pre-opening report that the European Commission is considering a six-month compromise deal with Greece — which was subsequently shot down by eurozone officials — has lifted expectations heading into tomorrow’s meeting. Yet there were multiple reports this afternoon that a new program will not be agreed so soon; this is merely the start of what’s to be a contentious negotiation that could very well end in acrimony.
With bulls way too eager to think that the oil price slide is over (production cuts have yet to happen) and that Greece is solved (a “Grexit” and resulting contagion risk to Italy, Spain, and Portugal remains likely) I continue to recommend clients hold a defensive posture.
After the close, Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN), which was one of five biotech stocks I recommended shorting on Monday, dropped 5.8% in response to a 10 million secondary share offering.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
