U.S. equities continued their post-election surge on Monday, pushing the Dow Jones Industrial Average and the other three major stock market averages to new record highs as a group for the first time since 1999.
Investors continue to view the incoming Trump administration and its plans for big tax cuts and spending as a huge tailwind for the economy. We’re also in a period of seasonal strength for the stock market (the oft-mentioned “Santa Claus” rally). And the rally was helped by some positive moves in the energy market as OPEC moves toward finalizing a production freeze agreement.
In the end, the Dow Jones Industrial Average gained 0.5%, the S&P 500 gained 0.8%, the Nasdaq Composite gained 0.9%, and the Russell 2000 gained 0.5%. Treasury bonds were firmer, the dollar was weaker, gold gained 0.1%, and crude oil gained 3.9% extending the 5%-plus rally from last week. The United States Oil Fund LP (ETF) (NYSEARCA:USO) gained 4.4%, lifting the Dec $10.50 USO calls recommend to Edge Pro subscribers to a gain of 30%.
Energy benefited from optimism surrounding OPEC’s ability to hammer out the details of the rough production agreement penciled out in Algiers in September. The Wall Street Journal cited comments from Iran’s oil minister who said it was “highly likely” a final agreement would be reached at the upcoming Nov. 30 meeting.
Headlines out of the “technical” OPEC meeting in Vienna underway today highlighted progress as well.
Moreover, Russian President Vladimir Putin said he sees no obstacles to a deal being reached and reiterated that if an agreement is made, Russia would freeze production as well.
No surprise then that energy stocks led the way higher, up 2.2% as a group. Materials gained 1.3%. Yield-sensitive utilities — an area of weakness lately — enjoyed a reprieve, up 1.1%.
Big tech stocks, which have been hit in the wake of Election Day on fears of a crackdown in H1B skilled visas and were the victims of some forced selling as institutional investors rotated capital out of the sector to chase returns elsewhere, also enjoyed a reprieve. Apple Inc. (NASDAQ:AAPL) gained 1.5% while Facebook Inc (NASDAQ:FB) rose 4.1% on the announcement of a $6 billion share purchase authorization.
LifeLock Inc (NYSE:LOCK) gained 14.8% after agreeing to be acquired by Symantec Corporation (NASDAQ:SYMC) in a $2.3 billion deal that represented nearly a 16% premium to Friday’s close.
On the downside, Tyson Foods, Inc. (NYSE:TSN) fell 14.5% after missing quarterly earnings estimates by around 17% on weaker sales with chicken income — which has been hit by lower selling prices — down 37% from estimates.
Looking Ahead
While the upside progress in stocks overall is awesome to see, there are risks in chasing the market higher here despite the seasonal strength and economic optimism in play.
Breadth remains dangerously narrow, with just 62% of the stocks in the S&P 500 in uptrends vs. 75%-plus back in September and 80% back in April. Just 55% of NYSE issues are above their 50-day moving average vs. 80%-plus back in July.
Also, the futures market is now nearly certain the Federal Reserve will raise interest rates again in December — something that could magnify the recent selling pressure in bond and bond-like stocks.
On Friday, the U.S. 10-Year Treasury Yield hit levels not seen since last November. Higher borrowing costs could hit the brakes on the housing market, auto sales, and consumer confidence generally.
For now, I recommend a cautious approach with a small bullish focus on areas of new strength such as energy. Examples include the ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO) that is up 11.2% for Edge subscribers since recommended on Nov. 15.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
