U.S. equities moved higher on Wednesday, mirroring an overnight move in Asia where risky assets ramped on the open of trading in Tokyo. There was an inexplicable bounce in the “yen carry trade” — with the U.S. dollar moving higher against the Japanese yen — that lifted spirits and set the positive tone for the day.
A similarly inexplicable smash lower in the CBOE Volatility Index (VIX) into the closing bell of trading in New York further juiced prices. I guess the machine trading algorithms were setting the tone of the day. And it was a positive one after the losses seen in Tuesday — the weakest start to September since 2002. Wednesday’s rise snapped a three-day losing streak.
In the end, the Dow Jones Industrial Average gained 1.8% but remains at levels first reached in late 2013, the S&P 500 gained 1.8%, the Nasdaq Composite gained 2.5%, and the Russell 2000 gained 1.6%.
Tech stocks provided leadership, climbing 2.6% as a group. Highlights included a 3.8% gain in Apple (AAPL), a 3.2% gain in Microsoft (MSFT), a 2.9% gain in Facebook (FB), and 2.5% gain in Intel (INTC). Airlines were also strong, with American (AAL) up 5.6% and Delta (DAL) up 5.1%.
Drone/action camera momentum favorite Ambarella (AMBA) dropped 8.5% after reporting solid Q2 results but issuing mediocre Q3 guidance on product launch pull-ins and inventory adjustment. That news hit GoPro (GPRO) on the product announcement issue, dropping GPRO shares 5.3%.
Crude oil gained 2% to close at $46.25 a barrel despite another report showing inventory gains heading into the end of the summer driving season. Furthermore, President Obama secured the backing of 34 U.S. Senators, clearing the way for the Iran nuclear deal, the withdrawal of economic sanctions, and the return of Iranian crude oil to an already oversupplied market.
On the economic front, the August ADP jobs report slightly missed expectations but remained in line with the 200,000 average seen in recent months. The consensus estimate for Friday’s big non-farm payrolls report — the last before the Federal Reserve decides whether or not to raise interest rates for the first time since 2006 — is 220,000.
With Chinese markets closed for the military parade holiday, it’ll be interesting to see how stocks react with the pause button pressed on one of the concerns that has been nagging investors lately.
To be sure, sentiment and breadth have been hammered.
Just a handful of S&P 500 stocks moved higher on Tuesday. And according to the Investors Intelligence survey, bullish sentiment among advisors is down to 27.8% from 31.6% a week ago and 57.4% at the end of April. This is the lowest level since the 26.4% recorded during the depths of the financial crisis.
On the other hand, technical indicators continue to flash red: Today, the Russell 2000 suffered its first “death cross” since late last year — the latest index to suffer a downward cross of its 50-day moving average below its 200-day moving average, a sign of lost medium-term uptrend support.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
