While stocks rallied to an incremental new high on Tuesday, the overall action remains rather tepid as sellers pushed the averages down into the closing bell.
The summertime doldrums have set in something serious this year as traders are loath to make big bets ahead of Federal Reserve Board Chair Janet Yellen’s speech to the Jackson Hole symposium on Friday.
In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 Index wafted up 0.2%, the Nasdaq Composite gained 0.3% and the Russell 2000 finished the day 0.7% higher. Treasury bonds were little changed, the dollar was mixed, gold gained 0.2% and oil finished 1.5% higher on indications an OPEC production “freeze” could actually happen next month.
Materials stocks led the way with a 0.8% gain while utilities were the laggards, down 0.5%. Best Buy Co Inc (NYSE:BBY) surged 19.6% after reporting a big second-quarter earnings beat on a surprise 0.8% jump in comp-store sales. Appliances were a bright spot, possibly related to the good news coming from the housing market (and thus, lifting housing stocks as well).
Indeed, luxury homebuilder Toll Brothers Inc (NYSE:TOL) gained 8.8% after beating estimates for the fourth straight quarter. Net signed contracts rose 18% as management mentioned no softness in the high-end home market. Edge subscribers are enjoying an 11% gain in their TOL position.
The SPDR S&P Homebuilders (ETF) (NYSEARCA:XHB) surged to levels not seen since early December thanks to a better-than-expected new home sales report. July sales increased to a seasonally adjusted annualized rate of 654,000 versus the 580,000 expected. This 12.4% rise pushed the index to levels not seen since October 2007. Inventory tightened, suggesting higher prices are on the way.
Back to the Fed.
Despite last week’s release of dovish July Fed meeting minutes, a number of Fed speakers since then have taken a decidedly hawkish stance despite tepid inflation and an unproven second-half bounce back in corporate earnings and GDP growth.
That’s bumped up expectations for a December rate hike somewhat. But given the Fed’s long history of “crying wolf” on rate hikes, I call BS. With the Fed’s tendency to go quiet ahead of presidential elections, Yellen will surely be vague and slightly dovish.
That should launch a nice juicy rally into the Labor Day weekend next week, as fears of a surprise September rate hike are taken off the table. Other positive catalysts will include the likely flurry of rumors heading into a meeting of oil producers next month. Late headlines today reported that Iran will indeed attend the powwow in Algiers after earlier indications it wouldn’t.
Look for a switch to a more defensive position heading into the first presidential debate and the seasonal headwinds October brings.
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.
