U.S. equities moved higher again on Wednesday in another relatively quiet session. There was an early session dip into negative territory, but that was about it in terms of excitement. Headlines were quiet — just smooth, steady buying demand.
There were, however, a few blemishes, including a worrisome narrowing of market breadth — something I’ll discuss below.
In the end, the Dow Jones Industrial Average gained 0.2%, the S&P 500 added 0.1%, the Nasdaq Composite finished stronger by 0.2% and the Russell 2000 gained 0.2%.
Treasury bonds were weaker, gold settle higher and oil gained 4% to close at $42.74 a barrel.
The gain in energy was a reversal from early weakness on news a labor strike in Kuwait had ended, fueled by a smaller-than-expected EIA inventory build of 2.1 million barrels (vs. 2.4 million expected) and less than the 3.1-million-barrel build reported in the API data on Tuesday night.
Also contributing were mid-day comments from Iraq’s Deputy Oil Minister Al-Nima that OPEC members and other producers were planning to meet in Russia in May to try to revive the proposed production freeze agreement scrapped in Doha on Sunday. However, Russian Energy Minister Alexander Novak expressed doubt any deal could be made and added that Russia hasn’t been incited to OPEC’s next scheduled meeting in June.
The day’s gains stood in contrast to overnight weakness out of China, where the Shanghai Composite dropped 2.3%, while Shenzhen lost 4.3% on fears Beijing may dial back stimulus support.
On the economic front, existing homes sales jumped 5.1% month-over-month. In earnings, American Express Company (NYSE:AXP) and Qualcomm Inc (NASDAQ:QCOM) are rising after the close on better-than-expected results. The Coca-Cola Co (NYSE:KO) lost 4.8% after just meeting expectations in its Q1 results and maintaining its fiscal year forecast after revenue declines for the fourth consecutive quarter (down 4% from last year).
On a technical basis, the situation remains vulnerable. The volatility “term structure” has steepened to levels not seen since December 2014 — a sign options traders are betting on more chaotic price action on a scale not seen in more than a year. The Dow is contending with a three-year resistance zone near 18,000.
And the number of stocks participating in the uptrend has been steadily narrowing, with just 417 net advancing issues on the New York Stock Exchange today, a 66% drop from Tuesday as buyers find fewer stocks attractive at these levels. Consider recent weakness in stocks like Netflix, Inc. (NASDAQ:NFLX) and Apple Inc. (NASDAQ:AAPL).
Fundamentally, earnings are set to decline in Q1 at the worst pace since 2009, the Federal Reserve is in a media blackout period ahead of its April policy statement (which could hint at a rate hike in June), and GDP growth is set for a measly 0.3% performance in Q1 according to the Atlanta Fed.
Investors should remain cautious.
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.
