U.S. equities finished mixed on Friday as investors seemed ready and willing to take a break after a harrowing couple of weeks — and months — in the stock market.
In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 was unchanged, the Nasdaq Composite gained 0.4% and the Russell 2000 gained 0.5%. Treasury bonds weakened, the dollar moved lower, gold gained 0.2% and oil gave back some recent strength, falling 3.2% to close at $29.80 a barrel.
Consumer stocks led the way higher, gaining 0.3% as a group followed by technology. Materials stocks suffered some profit-taking as the group has led the way higher out of the January low. The group fell 1.1%. Breadth was negative on the NYSE, with decliners slightly outpacing advancers.
Century Aluminum Co (CENX) continued a recent focus on materials stocks, surging 15.1% thanks to a Q4 loss that was smaller than expected on strong revenues. Analysts were happy to see a drop in the cash burn rate thanks to a focus on cost control measures. Troubled Internet icon Yahoo! Inc (NASDAQ:YHOO) gained 2.1% after announcing the formation of a committee of independent directors to explore strategic options.
Heavy equipment maker Deere & Company (NYSE:DE) lost 4.2% after reporting a fiscal Q1 earnings beat that was spoiled by a deeper than expected 15% year-over-year decline in equipment sales and disappointing forward guidance.
On the economic front, core consumer prices gained 0.3% in January over December in the largest monthly gain since August 2011. The 2.2% year-over-year gain was the best 12-month reading since June 2012. Apparel prices jumped 0.6% on a monthly basis following four months of declines. Medical care services prices gained 0.5%. Shelter costs were up 0.3%. Energy prices were down 2.8%.
Obviously, this will complicate the Federal Reserve’s policy outlook. Inflation is picking back up as the late-2014 decline in energy prices has become fully digested in the year-over-year calculations. The job market remains strong, with growing evidence of accelerating wage gains.
And yet, recent market volatility is a worry since it could tighten financial conditions by slowing the pace of IPOs and bond issuances, for instance. U.S. GDP growth have been tepid and measures of manufacturing activity have softened.
All of this increases the risks of another 0.25% interest rate hike by the Federal Reserve at its March policy meeting; a move that could very well result in the resumption of the recent downtrend.
For now, however, a strong short-covering dynamic and bombed out prices of energy and materials stocks means — at least for the near-term — stock prices should continue to drift upwards with the Dow set to challenge the 17,000 level.
You can see this in the way volatility — as measured by the iPath S&P 500 VIX Short-Term Futures (NYSEARCA:VXX) — is on the verge of breaking down out of its three-month uptrend as fear is squeezed out of the market. In response, I’ve recommended the March $26 VXX puts to my Edge Pro subscribers — a position that is already up nearly 10%.
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.
