U.S. equities climbed more than 1% for the third-consecutive session on Wednesday, the first such winning streak since October 2011.
Three dynamics are in play, including hopes of a production cut agreement by OPEC and Russia, a delay in Federal Reserve rate hikes and a classic “dash for trash” squeeze of the shorts, as the most hated stocks over the past month have been leading the move higher.
In the end, the Dow Jones Industrial Average gained 1.6% to finish off its third straight day of 200-plus point gains, the S&P 500 wafted up 1.7%, the Nasdaq Composite posted a 2.2% gain and the Russell 2000 ended the day 1.5% higher.
Elsewhere, treasury bonds weakened, the dollar remained mostly unchanged, gold moved slightly higher and oil gained 5.5% to close above the $30-a-barrel level.
Energy stocks led the way thanks to oil’s rise, finishing with a 2.9% gain as a group. Defensive utility stocks were the laggards. Overall, breadth was massively positive, with advancers outpacing decliners 4.9 to 1 on the NYSE.
Watchmaker Fossil Group Inc (NASDAQ:FOSL) gained 28.6% on solid earnings. Garmin Ltd. (NASDAQ:GRMN), which has been moving aggressively into the wearables segment, gained 19.3% on better-than-expected earnings. And Priceline Group Inc (NASDAQ:PCLN) gained 11.2% on an earnings beat driven by bookings ahead of expectations.
The First Catalyst: Iran’s oil minister met with officials from Qatar, Venezuela and Iraq to discuss a proposal to freeze production at January levels. He noted this was a first step and that more need to follow. But merely the fact that a dialogue has been opened is seen as a hugely positive step toward addressing the deep oversupply problem.
The Second Catalyst: The release of the January Federal Reserve meeting minutes Wednesday highlighted uncertainty among officials about the consequences of recent financial market volatility, including the possible tightening of financial conditions, the risk to foreign economies and the drag on inflation. The takeaway is that the Fed seems to be warming to the idea of a “wait-and-see” approach to allow the December rate hike — the first since 2006 — to be fully absorbed by capital markets and investors.
The Third Catalyst: The situation was primed for panicked short covering by market bears given deep oversold conditions, defensive positioning and bombed-out sentiment. In a note to clients, Goldman Sachs analysts noted that Tuesday was the largest short covering day since October 2014 in percentage terms. The tip of the spear on this front has been material stocks — steelmakers and miners and the like — that have seen their share prices hit with a neutron bomb on a combination of global economic growth fears and the revenue drag from lower commodity prices. Over the last few weeks, gold mining stocks have been hot with the likes of Barrick Gold Corporation (USA) (NYSE:ABX) up nearly 60% for Edge subscribers.
But now, the net is widening to include industrial materials as well. The SPDR S&P Metals & Mining ETF (NYSEARCA:XME) recommended to subscribers on Tuesday gained nearly 4% today to return to levels not seen since early December.
For their part, Edge Pro subscribers are enjoying the upside breakout in tech heavyweight Apple Inc. (NASDAQ:AAPL) — they are holding the March $100 calls — as shares push into their first upside breakout since October.
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.
