U.S. equities finished strong on Tuesday as investors await the Federal Reserve’s policy announcement on Wednesday.
Expectations are high that the Fed will focus on recent market turmoil, soft economic data and the downside risks to inflation from lower oil prices — which would implicitly walk back their four-quarter-point rate hike forecast for 2016 from December to more closely align with the one-and-done expectation from the futures market.
In the end, the Dow Jones Industrial Average gained 1.8%, the S&P 500 gained 1.4%, the Nasdaq Composite gained 1.1% and the Russell 2000 gained 2.1%. Treasury bonds were little change, the dollar weakened, gold rose 1.5% on stimulus hopes and crude oil gained 3.1% to close at $31.29 a barrel.
Crude oil’s rise back over the $30-a-barrel level lifted energy stocks to a gain of 3.8% on the day. Investors focused on comments from Iraq’s oil minister, who said Saudi Arabia and Russia are now more open to the idea of production cuts. This echoes recent comments from OPEC’s secretary general for all major energy producers to work together to cut output and ameliorate the global oversupply situation.
The earnings calendar was busy.
Sprint Corp (NYSE:S) gained an impressive 18.7% after a big fiscal Q3 operating earnings beat and a hike to fiscal 2016 guidance thanks to cost cuts. Coach Inc (NYSE:COH) gained 9.8% on an earnings beat. 3M Co (NYSE:MMM) gained 5.2% as most of its reporting segments beat income estimates. AK Steel Holding Corporation Steel (NYSE:AKS) gained 9.3% thanks to a cost-control earnings beat.
Procter & Gamble (NYSE:PG) climbed 2.6% thanks to better-than-expected organic sales growth. That pushed the Feb $75 PG calls recommended to Edge Pro subscribers to a gain of 72% since recommended on Jan. 19. A move over the $80 level — from the June and December highs — would set up a challenge of the late 2014 highs near $90.
Gold and silver are getting a lift on expectations global central banks such as the Bank of Japan and the European Central Bank are going to unleash more monetary policy easing. This is providing a lift to a number of gold and silver mining stocks I’ve been recommending for months including Barrick Gold Corporation (USA) (NYSE:ABX), which is pulling away from a consolidation range going all the way back to July. Edge subscribers are already enjoying a 28% month-to-date gain in the stock.
After the close, Apple Inc. (NASDAQ:AAPL) confirmed that the smartphone revolution has truly come and gone as iPhone sales grew by just 0.4% — the weakest result since the product’s 2007 launch. The company is now forecasting its first sales drop since 2003 for the first quarter of 2016 as China sales stall and a lack of innovative new products reduces demand. The stakes are raised for the debut of the all-new iPhone 7 later this year.
Quarterly results were mixed: Earnings beat at $3.28 per share (vs. $3.24 expected) but revenues missed at $75.9 billion (vs. $76.4 expected). Margins were good (40.1% vs. 39.9% last year) but iPhone shipments totaled 74.8 million (vs. 76 million expected and 74.5 million last year). Shipments on iPads were really soft, totaling 16.1 million (vs. 19 million expected and 21.4 million last year).
And yet stock is down slightly in after-hours trading.
AAPL’s woes aside, stocks are well positioned for a continuation of the recent rebound rally as technical measures — such as the percentage of stocks in uptrends — and sentiment recovers from the deep oversold levels seen last week. Dovish comments from the Fed in less than 24 hours should go a long way toward supporting that.
Heading into February, much will depend on a stabilization of oil prices and a continuation of recent job gains.
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.
