On Wednesday, the major U.S. indices inched forward for the third consecutive day. The S&P 500 rose 0.3%, getting closer to the all-time closing high of 2,130.82, made over a year ago. And even though the Dow Jones Industrial Average closed above 18,000, up 0.4%, the index is still more than 300 points from its all-time closing high of 18,312.39.
Utilities, consumer staples, materials and industrials led the market Wednesday, each up 0.6%.
Crude oil closed 1.7% higher at $51.23 a barrel. It has nearly doubled since its mid-February lows. Energy stocks were mixed Wednesday but have been the strongest sector since crude’s low.
Oil’s rebound is a positive for U.S.-based global manufacturers since the U.S. dollar has been weaker against a basket of currencies. And the buck will probably not show much strength in light of Friday’s weak jobs report and the likelihood that the Federal Reserve will delay an interest rate hike for at least several more months.
The yield on the 10-year Treasury note fell to 1.71% from 1.72% on Tuesday. In Europe, bond yields also fell as continued buying from the ECB persisted. On Wednesday, the ECB began a corporate bond purchase program in order to raise inflation and stimulate corporate earnings. However, the move is counterproductive to banks, which profit from rising rates and wider spreads. The euro gained 0.4% against the dollar.
Gold was up 1.2% on Wednesday to $1,259.80 an ounce.
At Wednesday’s close, the Dow Jones Industrial Average gained 67 points at 18,005, the S&P 500 rose 7 points to 2,119, the Nasdaq advanced 13 points to 4,975, and the Russell 2000 jumped 9 points to 1,189.
The NYSE Composite’s primary exchange traded 885 million shares with total volume of 3.5 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board and Nasdaq, advancers outpaced decliners by over 2-to-1. Block trades on the NYSE totaled 5,490, up from 5,037 on Tuesday.
The iShares Russell 2000 Index (ETF) (IWM) is pressing against resistance at $119, but MACD is overbought and volume is only average. The 2015 closing highs of $119.89 (December) and $129.01 (June) still represent overhead (sellers).
The SPDR S&P MidCap 400 ETF (MDY) is the strongest of all the major index ETFs. But volume suddenly lagged in the past two sessions, just as the June 2015 closing high at $281.66 appeared attainable. First minor support is at $271.
Conclusion
Oil is pushing mid and small caps higher. Oil’s advance is due to supply disruptions from Canada and South America, a weaker U.S. dollar and the lack of an OPEC agreement to curb production.
These factors have resulted in unnatural momentum that could persist for several months, but it can only push stocks to a limit. The question is, “Where is that limit?”
Many analysts think that $52 to $55 a barrel is as high as the market will allow this summer.
But with stocks, it’s never over till it’s over, and volume is still a major factor, especially at this lofty level. I wouldn’t be surprised if some investors throw in the towel rather than stick with a market as tediously slow to advance as this. However, I am now cautiously bullish.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
