Tuesday was the first day of the new trading year, and it was a volatile session, marked by a surge to buy shares of the Dow Jones Industrial Average’s financial companies. That rush to purchase drove the senior index up 0.6%, taking the Dow to within 100 points of the 20,000 target that has been the focus of many articles and discussion as to its importance.
The other major indices rallied, as well: The S&P 500 rose 0.8%, the Nasdaq gained 0.9% and the Russell 2000 gained 0.6%. But most of the gains occurred on the opening as the “500” rose over 1.1% then faded, taking back virtually all of the gains until a mid-afternoon rally saved what could have been a downside reversal. Mid-day selling was mostly the result of profit-taking in the technology stocks and a spike in the yen, which is considered the result of “risk-off” strategies.
However, late buying in healthcare and telecom stocks saved the day. Ten of the eleven sectors of the S&P 500 gained with healthcare up 1.4% and telecom services gaining 1.9%. Verizon Communications Inc. (NYSE:VZ) rose $1.20 to $54.58 following an upgrade to “buy” from Citigroup’s analyst. Amgen, Inc. (NASDAQ:AMGN), Gilead Sciences, Inc. (NASDAQ:GILD), and Centene Corp (NYSE:CNC) each rose over 2%, and the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) jumped 1.8%.
At the end of the trading session, risk-on strategies resulted in a decline in the 10-year Treasury note. Its yield rose to 2.5% from 2.4% on the prior close.
At the close the Dow Jones Industrial Average gained 119 points at 19,882, the S&P 500 rose 46 points to 2,258, the Nasdaq jumped 46 to 5,429, and the Russell 2000 closed at 1,365 for a gain of 8 points. The NYSE’s primary exchange traded 987 million shares with total volume of 3.7 billion shares. Nasdaq crossed 1.9 billion shares. On the Big Board, advancers outpaced decliners by over 3-to-1, and on the Nasdaq advancers led by 1.8-to-1. Blocks on the NYSE increased to 6,784, up from 6,219 last Friday.
Yesterday’s high at 19,938 was made immediately after the opening, and a second rally after 10 a.m. failed to breach that high. Profit-taking, encouraged by the negative impact of a strong dollar, drove the Dow close to its low of the day at 19,776 just before noon. Then a late-afternoon rally, followed on the close by block buying, resulted in a 119-point gain and a fresh push toward the barrier at 20,000.
Conclusion: One of the most-followed predictive indicators is the “January Effect” devised by Yale Hirsch in 1972. It states that as the S&P 500 goes in January, so goes the year. The January indicator has had only eight major errors since 1950, according to the Stock Trader’s Almanac, for an 87.9% accuracy ratio. This result does not include last January’s decline of 5.1% and the subsequent gain of 9.5% for the year. Last year’s gain was no doubt due to the Fed’s “easy money policy” rather than strong earnings. And that coincides with two other misses by the “Effect” when the Fed “saved” 2010 with QE2 and again in 2014 with QE3.
Perhaps, under a new administration, we will get back to a more normal course of action with a less intrusive Federal Reserve and a focus on corporate growth rather than low interest rates. So far, January has started off on a strong note. Let’s hope that it again confirms Yale Hirsch’s indicator.
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.
