You know the old adage: March comes in like a lion and out like a lamb, as winter gives way to spring.
It seems the same dynamic is in play in the stock market, as U.S. equities surged higher on Tuesday as the calendar flipped to a new month. The result was a fresh breakout for the uptrend off of the January-February lows, returning prices to levels last seen just after the New Year.
In the end, the Dow Jones Industrial Average gained 2.1%, the S&P 500 went up 2.4%, the Nasdaq Composite wafted up 2.9% and the Russell 2000 finished 2% stronger. Looking over other economic factors, treasury bonds weakened, the dollar was mixed, gold lost a touch and oil finished with a 1.9% gain to close at $34.39 a barrel.
There was no specific catalyst driving the action, just smooth and steady buying in cyclical areas such as banks. Financial stocks led the way with a 3.5% gain followed by technology with a 3.1% gain. Defensive utility stocks were the laggards.
United Technologies Corporation (NYSE:UTX) fell 1.6% after Honeywell International Inc. (NYSE:HON) announced it was no longer pursuing a merger deal due to UTX’s unwillingness to engage in negotiations. I guess the CEO didn’t return their texts.
Rio Tinto plc (ADR) (NYSE:RIO) gained 3.3% as strength in basic material stocks continues. Investors were encouraged by an upgrade from analysts at RBC noting increased financial flexibility. The SPDR S&P Metals and Mining (ETF) (NYSEARCA:XME) recommended to Edge subscribers is now up 6.5% since added on Feb. 17. Edge Pro subscribers, for their part, are enjoying a 91% gain in their Cemex SAB de CV (ADR) (NYSE:CX) March $5 calls.
A combination of new-month inflows into retirement accounts and ongoing short covering was likely responsible for the upswing. As is ongoing hopes of fresh central bank stimulus measures: The People’s Bank of China cut its reserve requirement on Monday while hopes are building for a European Central Bank meeting next and possible fiscal stimulus measures in Japan.
ECB chief Mario Draghi raised expectations for the March 10 policy announcement by reiterating there was no limit to what he could do, within his mandate, to get inflation back to target after the Eurozone fell into deflation in January (-0.2% vs. 0.3% month-over-month). Goldman Sachs analysts are looking for an interest rate cut deeper into negative territory and an increase in its monthly bond purchases by more than $10 billion.
Meanwhile, the Japanese press is reporting Tokyo is considering emergency economic measures as Japan falls back into deflation.
Here at home, there was some good news as the ISM manufacturing activity index bounced back with its best monthly gain since last spring. New orders are leading the way higher. Auto sales were also strong, with Ward’s estimating the seasonally adjusted annualized rate at around 17.4 million vehicles.
That’s the best result for February in more than 15 years thanks to cheap gas, easy credit and better weather. Ford Motor Company (NYSE:F) F-series pickup enjoyed its best sales performance in more than a decade, up 10% from last year.
As a result, fear and panic that was so pervasive a few weeks ago keeps melting away. You can see this in the way the CBOE Volatility Index (INDEXCBOE:VIX) — dubbed Wall Street’s “fear gauge” — has closed below its 200-day moving average for the first time since December. As a result, the March $26 puts on the iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX) recommended to Edge Pro subscribers are now up 81%.
Technically, things are looking really good for a run at Dow 17,000 and beyond as breadth (the percentage of stocks in uptrends) keeps rising and junk bonds, an area of recent worry, rally right beside equites as shown in the chart above.
The last piece of the trifecta would be a bounce in commodities prices driven by a possible OPEC-Russia supply freeze deal later this month.
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.
