U.S. equities notched another win in a quiet pre-holiday session on Tuesday.
In the end, the Dow Jones Industrial Average gained 1%, the S&P 500 gained 0.9%, the Nasdaq Composite gained 0.7%, and the Russell 2000 gained 0.9%. Treasury bonds were weaker, the dollar declined, gold declined and crude oil gained 0.9% to close at $36.14 a barrel.
The bounce in energy was the day’s main catalyst, helping energy stocks rise 1.2%. A few retailers were up big, with Finish Line Inc (NASDAQ:FINL) adding 9.8% after an analyst upgrade from Bank of America Merrill Lynch. Abercrombie & Fitch Co. (NYSE:ANF) gained 6.6% after management highlighted solid quarter-to-date results. Chipotle Mexican Grill, Inc. (NYSE:CMG) lost 5.3% after being downgraded to “neutral” from “overweight” by J.P. Morgan analysts in the wake of a new E. coli outbreak.
On the economic front, the National Association of Realtors showed existing home sales coming in at a seasonally adjusted annual rate of 4.76 million in November, a 10.5% drop from October and below the 5.32 million consensus estimate. This was the weakest result in 19 months. The NAR blamed the result on sparse inventory and affordability issues amid higher prices.
The Santa Claus rally effect seems to be playing out this week, with stocks gaining an average of 2% in December since 1990 with a positive result 81% of the time. For the month-to-date, the Dow is down 2.6%, so there is some catching up to do. Over the last 100 years, the month has been positive for stocks 73% of the time.
But the list of recent concerns remains and will surely be remembered once the holiday cheer fades, the calendar flips into 2016 and those holiday shopping bills come due.
They include the start of the Federal Reserve’s first policy tightening campaign in 11 years, weak economic data (especially manufacturing), falling corporate earnings, turmoil in the credit and commodities markets, dangerously narrow market breadth (reliance on big-tech stocks) and demanding equity market valuations.
Technically, the Dow is looking weak as well, with its 20-day moving average preparing to fall below its 50-day moving average for the first time since June — a sell signal indicating the start of a medium-term downtrend.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
