U.S. equities continued their “Trump-flation” meltup on Monday, hitting new records as the S&P 500’s market cap passed $20 trillion. President Donald Trump’s promise of something “phenomenal” on tax reform last week and another 0.9% gain in Apple Inc. (NASDAQ:AAPL) — which has been melting up on surprisingly good iPhone 7 sales — to a new record bolstered sentiment.
In the end, the Dow Jones Industrial Average gained 0.7%, the S&P 500 and the Nasdaq Composite gained 0.5% and the Russell 2000 gained 0.3%. Treasury bonds were mostly weaker, the dollar outperformed, gold lost 0.8%, and crude oil fell 1.7% to boost the ProShares UltraShort Bloomberg Crude Oil (NYSEARCA:SCO) — recommended to Edge subscribers — for a 3.3% gain.
Financial stocks led the way with a 1.1% gain, while telecoms were the laggards, down 1.3%. Verizon Communications Inc. (NYSE:VZ) fell 0.9% after announcing it will start selling unlimited data plans again on Monday for the first time since 2011.
Popeyes Louisiana Kitchen Inc (NASDAQ:PLKI) gained 7.2% after the fried chicken purveyor was reportedly approached by Restaurant Brands International Inc (NYSE:QSR) — the company behind Burger King — about a possible acquisition.
Macy’s Inc (NYSE:M) gained 1.8% after positive coverage in Barron’s on a possible spinoff of the company’s real estate assets.
Yet despite the on-the-surface excitement, breadth was weak, volatility as represented by the CBOE Volatility Index (VIX) moved higher, and crude oil rolled over after bonking on resistance from a sideways trading range going all the way back to May. In fact, the number of net advancing issues on the New York Stock Exchange declined 54% from Friday. And just two stocks — Goldman Sachs Group Inc (NYSE:GS) and Caterpillar Inc. (NYSE:CAT) — accounted for a third of the Dow Jones Industrial Average’s gain.
Perhaps some apprehension ahead of a speech by Federal Reserve chairwoman Janet Yellen Tuesday morning and new inflation and retail sales numbers on Wednesday. All of this could increase the odds of a March rate hike which, at this point, represents the single largest headwind for this increasingly complacent market.
Volatility continues to collapse, with 90-day realized volatility in the S&P 500 falling to the lowest level in 10 years. The market has also gone 86 days in a row without a 1% drop, 45 days without a 1% close-to-close gain or loss, and 40 days without a 1% intraday swing.
According to SentimenTrader, with all four major averages bagging new highs yet again, market history since 1980 shows that stocks tend to struggle in the months that follow. Large-caps post an average return of just 0.3% vs. a gain of 2.4% for any random three-month period.
And finally, on a valuation, stocks are simply expensive: The S&P 500’s price-to-book ratio is now back above 3 — the highest since 2004.
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.
