On Monday, stocks recovered all of Friday’s losses, with the Dow Jones Industrial Average rising 1.3% and the S&P 500 up 1.5%. The gains followed the worst day of declines since the Brexit vote, but Monday’s reversal is the largest one-day reversal this year. And the S&P 500 had its biggest one-day gain since early in July.
Friday’s decline was the result of worries that the world’s central banks were no longer willing to support markets. And comments from Federal Reserve officials seemed to contradict each other, even as late as Monday morning.
However, by Monday, investors apparently came to the conclusion that unanimity was not at all certain with regard to raising rates at the Fed’s next policy meeting on Sept. 20-21.
Blue-chip stocks with high dividends made some of the biggest gains on Monday: The utilities sector of the 500 rose 1.7%, Procter & Gamble Co (NYSE:PG) gained 2.3% and Wal-Mart Stores, Inc. (NYSE:WMT) rose 2.3%. Meanwhile, the exchange-traded fund iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) rose 3%, after falling about 2% on Friday.
But natural resource company, Freeport-McMoRan Inc (NYSE:FCX), led all other gainers on the 500, up 7.89%.
At the close on Monday, the Dow Jones Industrial Average rose 240 points at 18,325, the S&P 500 gained 31 to close at 2,159, the Nasdaq jumped 86 points to 5,212 and the Russell 2000 gained 17 at 1,236. The NYSE’s primary exchange traded 1 billion shares with total volume of 4 billion shares. The Nasdaq crossed 2 billion shares. On both major exchanges, advancers outpaced decliners by 2.6-to-1. Blocks on the NYSE fell to 5,651 from 6,037 on Friday.
When investors read the morning talk from Fed members who attempted to calm the emotions of investors over ECB President Mario Draghi’s comments, the VIX “Fear Index” retraced much of Friday’s emotions, but not before jumping to over 20.00 on the index. That is the highest volatility seen since Brexit.
Despite a rally that was the result of some Fed members’ attempts to “walk back” hardliner’s comments, a trading gap (down) exists from 2177.49 to 2169.08. Also note that yesterday’s recovery fell short of the S&P 500’s 50-day moving average at 2,165.04.
Conclusion: On Monday I wrote, “Friday’s sell-off appears to be a short-term event, just as the Brexit sell-off in late-June. Sell-offs in bull markets are part of the need for large traders to accumulate cash in order to move to their next “oversold” sector. In other words it is part of massive group rotation.”
I was only partially correct: right about the brevity of the decline, but said “short-term,” meaning days or even weeks, but hardly minutes.
I’ve complained about the fact that too much talk comes from both the ECB members and our Fed officials. It’s bad enough to hear Draghi opine over Europe’s plight and the ECB’s inability to control an out-of-control socialist mess. But during the “Blackout Period” prior to a Fed policy meeting, it is disconcerting to read comments from non-FOMC voter Dennis Lockhart, then Minneapolis Fed President Neel Kashkari, and finally Fed Governor Lael Brainard counter with her “dovish stance” (The Wall Street Journal).
These off-the-cuff comments rattle investors and thus markets. Chair Janet Yellen appears to have no control over her own members and investors pay the price of a stock market that has been buoyed solely by billions of dollars of false Fed support, instead of what should be a focus on job creation and GDP growth.
The functions of the Fed (from their own publication, “The Federal Reserve System – Purposes and Functions”): “The function of the Federal Reserve System is to foster a flow of credit and money that will facilitate orderly economic growth, a stable dollar, and long-run balance in our international payments.”
The current board, in my opinion, has failed in the most basic function — the “flow of credit and money that will facilitate, orderly economic growth, etc., etc.” Orderliness is not accomplished by individual governors expressing opinions that result in creating high volatility in our markets. Fed Governors: just go to work and shut-up!
And that is “my rant for the month.”
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.
