U.S. equities continued their strong start to November — as October’s positive momentum spills into the new month — in what looks like the beginning of a classic “Santa Claus” rally.
The catalyst has been indications major central banks are preparing for another round of monetary policy stimulus, or in the case of the Federal Reserve, at least delaying the start of planned policy tightening after a weak Manufacturing Activity Index report on Monday.
Other dynamics include panicked, short-covering driven buying in recent laggards — especially energy stocks — as well as buyback activity and buyout headlines.
In the end, the Dow Jones Industrial Average gained 0.5% as it closes in on the 18,000 level for the first time since July, the S&P 500 grew 0.3%, the Nasdaq Composite went up 0.4% and the Russell 2000 wafted 0.5% higher to end the day.
Further, treasury bonds were weak, the dollar was stronger, gold lost nearly 2% and crude oil gained 3.7% to close at $47.83 a barrel.
Energy led the way with a 2.5% gain thanks in part to reports of falling production of our Brazil and Libya. Earnings by the oil majors last week weren’t as bad as expected. And Evercore ISI believes we’re on the verge of a shift in sentiment towards the services space.
ConocoPhilips (NYSE:COP) gained 3.2% to push the November $55 calls recommended to Edge Pro subscribers on Monday to a 50% gain. The Energy SPDR ETF (NYSEARCA:XLE) has punched out of a month-long consolidation range and is challenging its 200-day moving average — a level it hasn’t been over since September 2014.
King Digital Entertainment PLC (NYSE:KING) jumped 14.9% after agreeing to be acquired by Activision Blizzard, Inc. (NASDAQ:ATVI) for $5.9 billion. Hewlett-Packard Company (NYSE:HPQ) gained another 3.3% to rise above its 200-day moving average as investors continue to respond to the company’s split this week.
Defensive consumer staples stocks were the laggards, falling 0.5%. Fitbit Inc (NYSE:FIT) dropped 8.6% after reporting a top- and bottom-line beat and guidance raise, but disappointed by announcing a follow-on equity offering. Sprint Corp (NYSE:S) dropped 7% on lower operating earnings guidance and concerns about subscriber numbers. And Avis Budget Group Inc (NASDAQ:CAR) dropped 11.4% on concerns about lower guidance and chatter that Uber is eating into its core market.
Looking ahead, the Fed will be in focus on Wednesday as chairman Janet Yellen, Vice Chair Stanley Fischer, Fed Governor Lael Brainard, Philadelphia Fed President Patrick Harker and New York Fed President William Dudley are all set to speak.
With odds of a December rate hike liftoff at about 50-50, investors will be watching for clues as to how concerns officials are to downside risks to the economy, the health of the job market, and the likelihood of inflation quickly returning to their 2% target in light of ongoing weakness in energy prices.
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.
