U.S. equities finished mixed on Monday amid quiet trading as focus remained on the aftermath of Hurricane Harvey and the heavy flooding in Houston. But there was action if you knew where to look, with precious metals in particular on the move.
A few dynamics are driving this. For one, headlines are being filled more and more with dread about the approaching debt ceiling debacle. Two, the Federal Reserve is preparing for the start of “quantitative tightening” next month. And three, stocks look vulnerable to a pullback here as breadth continues to narrow, risk measures remain red-hot, and valuations are at extremes.
In the end, the Dow Jones Industrial Average lost a fraction, the S&P 500 gained 0.1%, the Nasdaq Composite gained 0.3% and the Russell 2000 added 0.4%, marginally retaking its 200-day moving average.
Elsewhere, Treasury bonds were mixed, the dollar was under pressure, gold gained 1.3% and oil fell 2.7% as Harvey caused refineries to shut down and would worsen the crude oil oversupply.
Click to Enlarge Breadth was even and volume light, at 86% of the NYSE’s 30-day average. Healthcare stocks gained 0.6% to lead the way while financials were the laggards, on insurance claim fears, falling 0.5%. Kite Pharma Inc (NASDAQ:KITE) surged 28% after agreeing to be acquired by Gilead Sciences, Inc. (NASDAQ:GILD) in a near $12 billion deal. Expedia Inc (NASDAQ: EXPE) fell 4.1% after its CEO was widely reported to be leaving to take the helm at Uber.
Conclusion
Click to Enlarge The adjacent chart, from ZeroHedge, tells the tale right now: Sentiment and investor positioning is off the charts despite an ongoing narrowing of breadth, valuations that have only been higher heading into the height of the dot-com bubble and corporate earnings growth that looks set to stall.
Dow Jones futures are trading down sharply in early trading after North Korea launched a ballistic missile over Japan, restarting the nuclear-armed standoff between Pyongyang and President Donald Trump that rattled markets earlier this month. A risk-off bid is underway, with gold pushing higher and Treasury yields moving lower as bond prices trend upward.
The South Korean military has been put on alert, raising the odds of an escalation.
This comes just three days after North Korea launched three short-range missiles without any response from Trump amid his focus on the situation in Texas. It’s unlikely this provocation will be similarly ignored.
Check out Serge Berger’s Trade of the Day for Aug. 29.
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.
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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
