U.S. equities surged higher on Thursday extending their post-Fed gains from Wednesday. With the threat of the September rate hike now fully faded, investors are piling into high-beta momentum favorites like Amazon.com, Inc (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB). For the first time ever, AMZN crossed the $800-a-share hurdle.
All because Fed chairman Janet Yellen sounded a dovish note, saying the labor market had “room to run” as policymakers lowered their long-term GDP growth rate to the lowest ever.
In the end, the Dow Jones Industrial Average gained 0.5%, the S&P 500 wafted up 0.7%, the Nasdaq Composite added 0.8% to close above 5,300 and the Russell 2000 ended the day 1.5% higher.
Treasury bonds were mixed, the dollar was weaker overall, gold gained 1% on rising inflation expectations (with the Fed so dovish), and crude oil gained 2.2% amid ongoing chatter of a possible OPEC/Russia supply freeze deal out of a meeting in Algiers later this month.
The rise in energy prices represented d the fourth consecutive gain and was helped by comments from Iraq’s OPEC governor that now is the right time for the cartel to reach an agreement as current prices are pressuring fiscal budgets up and down the Persian Gulf.
On the economic front, housing data was mixed with August existing-home sales down for the second straight month at a 5.33 million seasonally-adjusted annualized rate (down 0.9% month-over-month).
Overall, the day represented the largest buying spree on Wall Street since the initial bounce out of the Brexit low in June. But a few worries linger.
For one, the correlation between bonds and stocks (which was a point of some market turmoil a couple of weeks ago when both were falling in unison) has only increased during the rally this week. This has boosted the risk-parity funds that were the focus of some worry after the Bank of Japan first teased a desire to lift long-term interest rates.
While things are great now that prices are rising again, the tight correlation has reached levels last seen in October 2007. Should weakness rematerialize, the losses will hurt more because of the reduced diversification benefit.
Also, breadth has been somewhat narrow with stocks in areas like consumer staples and energy lagging behind. Unless demand widens soon, this could become a bigger concern.
For now, however, we’re off to the races with stocks like GoPro Inc (NASDAQ:GPRO) enjoying nice turnarounds. Shares are up 10.5% for Edge subscribers so far this month thanks to the unveiling of the Hero 5 camera and Karma video drone.
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.
