On Tuesday, the Dow gained only slightly more than a quarter of a point, but it was enough to maintain seven consecutive advancing sessions. Four of those sessions were at record highs.
Group rotation helped the Nasdaq lead the big-cap indices with a gain of 1.1%, while the S&P 500 lagged with a gain of just 0.8%. The “reflation trade” described by The Wall Street Journal as a reaction to the new administration’s proposed increase in fiscal spending, lower corporate taxes and a boost in growth and inflation, signaled that it may be slowing.
This was demonstrated by a bounce in utilities, bonds and other higher-yielding stocks associated mainly with government spending in large-scale public works projects. Meanwhile the financial sector of the S&P 500, subjects of buying since the election, yesterday gained a mere 0.1%.
The dollar rose for the seventh consecutive session, but it too lagged, up a mere 0.1% vs. a basket of 16 currencies.
Commodities, led by WTI crude oil, rose 5.7% to $45.81 per barrel And as a result, energy stocks gained: Chesapeake Energy Corporation (NYSE:CHK) rose 11%, Murphy Oil Corporation (NYSE:MUR) gained 9.1%, Apache Corporation (NYSE:APA) was up 7.6%, Occidental Petroleum Corporation (NYSE:OXY) jumped 4.2% and Kinder Morgan Inc (NYSE:KMI) gained 4.1%.
At the close, the Dow Jones Industrial Average rose 54 points at 18,923, the S&P 500 gained 16 at 2,180, the Nasdaq jumped 57 to 5,276 and the Russell 2000 closed at 1,302, up 16 points. The NYSE’s primary exchange traded over 1 billion shares with total volume of 4.5 billion shares. The Nasdaq crossed 2.1 billion shares. On the Big Board, advancers outpaced decliners by 2.6-to-1, and on the Nasdaq, advancers led by 1.6-to-1. Blocks on the NYSE fell to 5,712 from 6,927 on Monday.
Technology stocks had a post-election fall as demonstrated by the chart of the Technology SPDR (ETF) (NYSEARCA:XLK). However, yesterday’s rebound from the support line at $46 on higher-than-average volume could demonstrate that the fall was due to nothing more than group rotation. After a big run from under $42 to $48, it is not unreasonable for buyers to seek other ways to invest and nail down gains in a volatile sector.
Support is at $46 and resistance at $48 for the XLK.
Conclusion: From a traditional point of view, technology stocks are usually weaker in an environment of rising rates. However, that didn’t appear to be a problem until after the presidential election, when other sectors seemed to offer more bang for the buck than in the pre-election depressed state.
Transportation, financial, health insurers, energy, etc., all had been beaten down. From a basic value comparison they offer more short-term trading potential than technology with a P/E that exceeds 23X forward earnings (see my Nov. 10 DTA for a list of undervalued sectors).
But techs again offer value following a normal correction. The press has hammered them to a point that those with basic value (see Trade of the Day) could be a bargain at the current support lines.
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.
