U.S. equities remain stalled just below the 20,000 level on the Dow Jones Industrial Average, unable over the past two weeks to push above the threshold as the post-election rally hits its first major hurdle in the wake of last week’s interest rate hike by the Federal Reserve. Seasonality is turning less helpful as well.
Suddenly, despite the day’s gains, the market is suddenly reconsidering their enthusiasm for President-elect Trump amid unanswered questions about any fiscal stimulus, the path of inflation and how budget hawks in Congress will respond to calls for tax cuts and spending hikes.
In the end, the Dow gained 0.2%, the S&P 500 wafted up 0.2%, the Nasdaq Composite gained 0.4% and the Russell 2000 ended the day 0.6% higher. Treasury bonds were stronger, the dollar was mixed, gold gained 0.5% and oil gained 0.2%. Edge subscribers recently closed their position in the ProShares Ultra Crude Oil (NYSEARCA:UCO) for a 23% since it was recommended in November.
Bond proxies got a lift today on the bounce in T-bonds, with telecoms and REITs leading the way with gains of 1.1% and 1% respectively. Health care and energy were the laggards with declines of 0.5%. Costco Wholesale Corporation (NASDAQ:COST) gained 1.9% on an upgrade from analysts at Citigroup citing the abatement of short-term headwinds.
On the downside, steelmaker ArcelorMittal SA (ADR) (NYSE:MT) fell 3.4% on a downgrade from analysts at UBS after a profitability analysis showed margins vulnerable to downside pressure as volume likely won’t be able to offset weaker metal prices.
On the economic front, the big news was from Federal Reserve Board Chair Janet Yellen, who commented on the labor market in a speech to the University of Baltimore. She said the U.S. labor market was in its strongest position in a decade thanks in part to accelerating wage growth and a low layoff rate. She highlighted that monetary policy remains accommodative and would support some further improvements in the jobs market to push inflation to their 2% target.
Separately, the Markit flash services PMI for December fell to 53.4, down from 54.6 in November and below the 55.1 consensus estimate. Cost pressures accelerated to one of the fastest rates since the middle of 2015.
On a technical basis, the market looks vulnerable to a pullback here are breadth narrows and seasonality weakens into January — the site of a nasty China/oil related selloff this year.
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.
