The S&P 500 set a new all-time and closing high on Monday. It was its first record high in over a year and indicated investors’ view of the U.S. economy is solid. And the Dow Jones Industrial Average is just 0.7% off its all-time high.
The move higher began with Friday’s better-than-expected jobs report This, along with a recovery in oil prices and accommodative comments from the Federal Reserve, encouraged sidelined money into the stock market.
FactSet reported that analysts expect corporate profits to fall 5.6% in Q2 compared with a year ago. This would mark the fifth consecutive quarter of lower earnings. But some analysts expect positive earnings growth to return before year-end.
The financial sector rebounded following weeks of declines, up 0.6%. JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc (NYSE:C) each rose 0.7%, and Bank of America Corp (NYSE:BAC) gained 0.3%.
The yield on the benchmark 10-year Treasury note fell to a low of 1.36% before reversing to close at 1.43%. Low rates have driven money to higher yielding stocks. Crude oil lost 1.4% at $44.76 a barrel, and gold fell 0.1% to $1,356.60 an ounce.
At Monday’s close, the Dow Jones Industrial Average gained 80 points at 18,227, the S&P 500 rose 7 points to 2,137, the Nasdaq was up 32 points at 4,989, and the Russell 2000 advanced 13 points to 1,190.
The NYSE Composite’s primary exchange traded 811 million shares with total volume of 3.2 billion shares. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 2.2-to-1, and on the Nasdaq, advancers led by 2-to-1. Block trades on the NYSE were slightly lower than on Friday.
On the previous Daily Market Outlook, one of our readers, “Skidog,” noted something that’s been bothering me for months. I’ve mentioned several times the lack of follow-through by the Dow Jones Transportation Average. This non-confirmation is a negative under Dow Theory.
Note that a confirmation is not even close since the all-time high for the transports is at 9,310, more than 20% above Monday’s close.
Conclusion
Friday’s breakout had firm internal indicators: Advancing volume over declining volume was at 15-to-1 and, as noted by MarketWatch’s Michael Ashbaugh, the post-Brexit reversal originated from consecutive 9-to-1 up days.
Despite the many positives and a clear continuation of a secular bull market, this has been an odd advance with the transports lagging, low volume and suspicious breadth numbers. Another group that usually leads is the financials, and they are badly lagging.
Nevertheless, what is, is. And whether we like it or not, the overall trend is up. Just be cautious and don’t chase stocks that gap up on low volume — unless you are shorting them.
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.
