Yesterday marked another day of mixed trading. The sole event saving the broad market from a loss was the report from the most recent Fed meeting. The FOMC minutes revealed that the Fed governors are of the opinion that a policy of low interest rates should be retained.
The policy statement did not say, however, that the Fed would not increase rates promptly if needed, and went on to clarify its statement by saying, “A number of members noted that the [Fed’s] expectation for policy was explicitly contingent on the evolution of the economy rather than on the passage of any fixed amount of calendar time.
Bank stocks rose on the news that the Fed was not ready to increase rates. The KBW Bank Index (BKX) rose 2.4%, and the financial sector gained 1.1%.
Retailers were strong, gaining 0.6%, with Dollar General (DG) up 4.69% following a rating increase by Wells Fargo. Family Dollar (FDO) rose 0.8% in anticipation of an earnings release today.
Even though the Dow Jones Industrial Average (DJI) failed to close above 11,000, the other indices reported modest gains. At the close, the Dow was down 4 points to 10,970, the S&P 500 (SPX) was up 2 points to 1,189, and the Nasdaq (NASD) was up 7 points to 2,437.
The NYSE traded 936 million shares with advancers over decliners by a margin of 8-to-7, while the Nasdaq crossed 547 million shares with advancers ahead by about 5-to-3.
May crude oil rose 22 cents with the final fix at $86.84 a barrel. The Energy Select Sector SPDR (XLE) was unchanged at $59.58.
June Gold gained $2.20 to $1,136 an ounce on talk of an eventual bout of inflation. The PHLX Gold/Silver Sector Index (XAU) closed at 172.58, up .49 points.
What the Markets Are Saying
By now our readers are familiar with my assessment of the current market condition as “slower than plodding” and grossly overbought both in terms of internal and sentiment indicators. So today I’d like to move on to an area that is not plodding or inching.
The subject is gold and precious metals.
First, let me assure you that I am not a “gold bug” — one of those fellows who always recommends gold. Those who know me and have followed my recommendations for four decades are witnesses to my favorable stance on gold stocks in the early ’80s, to selling them in the mid-’80s, and then a neutral opinion until several years ago.
Gold has no magical power. It is not always a good investment. In fact, most often it is not, and has at times even been worth nothing (despite what the TV advertising would lead you to believe). Let me explain that last one …
On May 1, 1933, by executive order 6102, the President Franklin D. Roosevelt ordered all citizens to turn over their gold coins, bullion and gold certificates to the Federal Reserve at the rate of $20.67 per troy ounce. At that point, it became illegal for U.S. citizens to own gold (except for $100 in gold coins), and FDR further ordered that violations of the presidential order would result in a fine of $10,000, up to 10 years in prison, or both.
Thus, gold for a U.S. citizen was not only worth zero, since it could not be bought or sold, but could be worth a negative $10,000, plus jail time. The act was changed in 1934 to revalue gold at $35 an ounce “for foreign exchange,” but citizens were still prohibited from owning it until President Nixon changed the law in 1971.
Tomorrow, I’ll continue the gold review with reasons to own precious metals and some better ways to play these popular commodities than through coins or bullion.
Today’s Trading Landscape
Earnings to be reported before the opening include: Family Dollar, Greenbrier Companies, Monsanto and MSC Industrial Direct.
Earnings to be reported after the close include: Allscripts-Misys Healthcare, Apogee Enterprises, Bed, Bath & Beyond, Lawson Software, Mitcham Industries, Pep Boys, Ruby Tuesday, Schnitzer Steel Industries and WD-40 Company.
Economic reports due: MBA purchase applications, EIA petroleum status report and consumer credit.
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- Use Trendlines to Predict the Market”s Next Move
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