Wall Street has been the scene of some dramatics over the past 24-hours, with a two-day drop through Wednesday pushing the Dow Jones Industrial Average back below the 17,000 level, and the Russell 2000 seemingly confirmed a nasty looking five-month downtrend pattern. Investors were bothered by weak guidance from Wal-Mart (NYSE:WMT), weak economic data and ongoing fears over the third-quarter earnings season.
But as if on the flip of a switch, the tide turned Thursday; starting with a rally in the overnight futures session and nice gains in Asian markets after Federal Reserve whisperer Jon Hilsenrath at the Wall Street Journal confirmed what I’ve been saying for weeks: Fed chairman Janet Yellen will be unable to ignore signs of economic stalling.
Already, futures market odds put a rate hike at the March 2016 policy meeting at about 50-50. A 2015 rate hike is pretty much off the table at this point. The WSJ piece just proves the Fed is kowtowing, once again, to market expectations.
Bolstered by the promise of a continuation of the Fed’s 0% interest rate policy into its ninth calendar year, the bulls powered U.S. equities higher in an afternoon of smooth, powerful, professional buying.
In the end, the Dow Jones gained 1.3%, the S&P 500 took 1.5%, the Nasdaq Composite went up 1.8% and the Russell 2000 finished 2.3% higher. The dollar was mixed, however, but gold extended its run with a 70 basis point gain, while crude oil grew 40 basis points to close at $46.81 a barrel.
Some early-session weakness was attributed to comments from New York Fed President William Dudley, who said that a rate hike is still a possibility this year and that a return to the Fed’s 2% inflation target wasn’t a precondition. Yet the overall impression, despite the somewhat mixed messaging, is that the Fed can’t afford to pull the trigger on rate liftoff too early and rattle fragile, stimulus-addicted markets.
So they’ll wait.
In earnings news, investors kindly greeted Q3 results out of the financial sector. KeyCorp (NYSE:KEY) gained 4.7% after reporting inline profits on better fees and loan growth trends. Citigroup (NYSE:C) gained 4.4% on better-than-expected earnings per share. Goldman Sachs (NYSE:GS) reported that its fixed income, currency, and commodities trading revenue fell 33% over last year, but managed to meet earnings expectations. Shares rallied 3%.
Overall, financial shares gained 2.3% to lead the market high. Materials were the laggards, adding 0.3%. Edge subscribers have exposure to the move via their KBW Regional Bank (NYSEARCA:KRE) ETF, which added 1.8% today. Edge Pro subscribers are enjoying a 22% gain in their C November $52.50 calls recommended last week.
Looking ahead, we’ll get results from General Electric (NYSE:GE) on Friday morning as well as an update on the labor market from the Job Openings and Labor Turnover Survey and the latest industrial production data.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
