U.S. equities rebounded nicely from early morning losses on Thursday, recovering from overnight losses after the Bank of Japan disappointed with an “unchanged” policy decision. There were whispers the BoJ could increase its equity purchase stimulus program in scope or size. Instead, officials seem to be waiting in a bid to pressure Tokyo into a more aggressive fiscal stimulus push.
Brexit fears seems to ease a little following the murder of MP and “Remain” supporter Jo Cox in the United Kingdom. The International Monetary Fund delayed a report on the economic impact of “Leave” citing the murder. The Brexit campaign announced a suspension of its campaign, leading many to assume the vote itself on June 23 could be delayed — which, with just days to go, is probably too late to stop.
In the end, the Dow Jones Industrial Average gained 0.5%, the S&P 500 gained 0.3%, the Nasdaq Composite gained 0.2% and the Russell 2000 bucked the trend to lose 0.1%.
Treasury bonds were mixed the dollar was lower against the yen, gold gained 0.8% but traded off of its highs and crude oil moved lower for its sixth consecutive loss, down 3.8%. The pushed the ProShares UltraShort Crude Oil (NYSEARCA:SCO) recommended to Edge subscribers to a gain of 5.8%.
Defensive telecom and utility stocks led the way, undermining somewhat the impression of strength given by the closing numbers, with gains of 0.8% and 0.6%, respectively. Energy stocks were the laggards, down 0.2%.
Chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD) gained 7.4% thanks to an upgrade to buy from analysts at Canaccord on a better product roadmap. American Airlines Group Inc (NASDAQ:AAL) dropped 4.4% on a downgrade by Bank of America Merrill Lynch on high leverage, earnings volatility and premium valuations.
On the economic front, May headline consumer price inflation came in slightly below expectations rising 1% year-over-year vs. the 1.1% gain last month. Core prices matched expectations thanks to a rise in housing costs.
Stepping back, the death of MP Cox, while tragic, is unlikely to change the course of the Brexit vote. And that means recent market volatility is likely to continue once we get past June options expiration on Friday. The Bank of England, the Swiss National Bank and the BoJ have all warned of the imminent risks to markets from the Brexit vote.
And technical indicators such as S&P 500 breadth are rolling over, at the same time we’ve seen intense interest in safe havens and defensive sectors, suggests traders are preparing for a continuation of recent volatility.
I continue to recommend defensive positions focusing on areas of weakness like financials. Big banks like Goldman Sachs Group Inc (NYSE:GS) look very vulnerable to the ongoing collapse in net interest margins.
The July $150 GS puts recommended to Edge Pro subscribers are already up around 50% since recommended on June 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.
