U.S. equities climbed at the open and never looked back on Monday thanks — as is so often these days — on hopes of more stimulus. This time, it was a combination of hopes the Federal Reserve will wait past September to start its rate-tightening campaign, as well as rising expectations that the People’s Bank of China will get more aggressive amid soft trade and inflation data.
In the end, the Dow Jones Industrial Average gained 1.4%, the S&P 500 gained 1.3%, the Nasdaq Composite gained 1.2% and the Russell 2000 gained 1.3%. For now, the gains aren’t enough to forestall the approach of a “death cross” on the Dow Jones, as the 50-day moving average prepares to drop below the 200-day MA for the first time since 2011.
The combination of factors hit the U.S. dollar, which in turn lifted commodity prices. Crude oil gained 2% to close at $44.76 a barrel while gold gained 0.8% to finish at $1,102.80.
The latter lifted the gold and silver stocks recommended to Edge subscribers last week, including a 10.8% gain in Kinross Gold Corporation (USA) (NYSE:KGC) and an 8.1% rise in Barrick Gold Corporation (USA) (NYSE:ABX). Goldcorp Inc. (USA) (NYSE:GG) gained 6.8% to bring its total gain to nearly 10% since being added on Aug. 3.
Energy stocks led the way at the sector level, rising 3.1% followed by materials stocks, which added 2.5%. Utility stocks were the laggards, down 0.4%.
Tesla Motors Inc (NASDAQ:TSLA) dropped 0.6% after a Reuters article highlighted the company’s cash burn rate and the fact it loses $4,000 on every Model S it sells. Twitter Inc (NYSE:TWTR) gained 9.1% on insider buying and a Bloomberg report the company is considering a board shakeup.
Lastly, Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) snuck in an announcement that it would be changing its corporate structure to involve a new company called Alphabet Inc. that will contain Google and several other businesses.
Back to the Fed.
Investors remain preoccupied with the approaching hike/no hike decision on Sept. 17. According to the most recent Reuters survey, 13 of 19 primary dealers expect the Fed to lift rates next month — but only nine think it will raise rates twice this year, down from 15 out of 20 in the prior survey.
Vice chairman Staley Fischer said today that low inflation will not continue with the economy near full employment citing the impact of oil prices and other raw materials. Atlanta Fed president Dennis Lockhart said the time to begin raising rates “is close” — which some took as dovish since he said last week that the economy looked ready for a September hike, encouraging today’s low-volume rebound.
In China, exports fell below expectations dropping 8.3% in July over last year vs. the 1.5% decline forecast. Producer price inflation dropped to its lowest level since October 2009 down 5.4% year-over-year vs. the 5% drop expected and the 4.8% drop posted in June.
Analysts at JPMorgan are looking for one more rate cut from the People’s Bank of China and two more reserve ratio rate cuts this year. HSBC warned China “still faces grim deflation risk” while ANZ said it was unlikely that trade growth would recover this year.
Fresh stimulus out of the Middle Kingdom and a delayed Fed rate hike would continue to lift gold, silver, and the related mining stocks — areas of the market that have been ignored and disparaged for years.
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.
