U.S. equities climbed higher on Thursday after initially oscillating around the unchanged line. News flow was relatively light, with investors focused on Federal Reserve Board Chair Janet Yellen’s testimony to Congress.
No surprises were on offer, commenting that uncertainty on policy and the economy was likely to continue following the presidential election but that a gradual pace of tightening was still appropriate. She added that she foresees no circumstance that would cause her to leave before her term is up (something that had been hinted given criticism from president-elect Donald Trump). For now, futures market odds of a December hike remain above 90%.
In the end, the Dow Jones Industrial Average gained 0.2%, the S&P 500 gained 0.5%, the Nasdaq Composite added 0.7% and the Russell 2000 finished 0.6% higher.
The dollar maintained its recent strength, climbing for the ninth consecutive day and rising notably against the Japanese yen. That boosted the ProShares UltraShort Yen (NYSEARCA:YCS) recommended to Edge subscribers to a gain of nearly 7% since recommended on Nov. 10. Treasury bonds weakened, gold lost 0.6% and oil fell 0.3%.
Wal-Mart Stores, Inc. (NYSE:WMT) fell 3.1% despite an earnings beat and guidance raise, losing its two-month uptrend. Best Buy Co Inc (NYSE:BBY) gained 13.7% thanks to a big Q3 earnings beat on wider than expected margins driven by computing and home theatre sales. Microsoft Corporation (NASDAQ:MSFT) rose 1.7% on an upgrade from analysts at Goldman Sachs citing accelerating profits from its cloud business and upside earnings potential in the out years.
After the close, Gap Inc (NYSE:GPS) fell 2.8% despite a top- and bottom-line beat as forward guidance came in soft.
Overall, financials led the way with a 1.3% gain while yield-sensitive REITs fell 1%, both affected by another rise in long-term interest rates as a result of bond market weakness and rising inflation expectations.
And finally, on the economic front, initial jobless claims fell to the lowest level since November 1973, housing starts in October came in better than expected, consumer price inflation picked up slightly pushing the annual rate to 1.4% (best since October 2014), and the Philly Fed manufacturing index slipped slightly.
On a technical basis, the market’s post-Trump advance continues to look shaky given narrow breadth, a bothersome number of stocks making new lows, and the ongoing weakness in bonds. The UltraShort Treasury Bond (NYSEARCA:TBT) recommended to Edge subscribers is up nearly 30% since recommended in August.
Consider that there were only 146 net advancing issues on the NYSE, down from a high of roughly 2,000 on the Monday surge before Election Day. Or that just 62% of the stocks in the S&P 500 are in uptrends vs. 80% back in April.
While I wouldn’t bet against the market here given the upside momentum, investors should resist the urge to chase it. Focus instead on areas like the dollar, short bonds, and a possible nascent rally in energy and oil stocks.
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.
