U.S. equities reversed steep overnight losses in the futures markets to surge throughout the day on Monday, as Friday night’s attack by the so-called Islamic State in Paris, France did not deter investors.
In the end, the Dow Jones Industrial Average gained 1.4%, the S&P 500 jumped 1.5%, the Nasdaq Composite reached a 1.2% gain and the Russell 2000 ended the day 80 basis points higher.
Overall, the Dow Jones climbed 400 points from the futures open tick, erasing the losses seen on Friday. Small caps, shown in black below, continue to lag behind a narrow group of Big Tech stocks holding the market aloft.
Volatility was crushed, as is often seen during persistent melt-up days like Monday, hitting the Short-Term VIX (NYSEARCA:VXX) with its largest one-day loss since 2013. Still, Edge subscribers are enjoying a 13% gain in their Velocity Shares 2x VIX (NASDAQ:TVIX) position, as fears over the consequences of a possible December interest rate hike from the Federal Reserve continue to weigh on sentiment.
Commodities were mixed with crude oil gaining 3.1% to close above $42 a barrel (war premium?), while copper was crushed to fresh lows not seen since April 2009, down for the ninth consecutive session.
As a result, energy stocks led the way with a 3.3% gain at the sector level. But the rest of the outperformers reflect a lingering sense of caution, with utilities, telecom and consumer staples among the best of the rest. Industrials were the laggards, up 1.2%.
Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) dropped 3.6% after agreeing to be acquired by Marriot International Inc (NASDAQ:MAR) for $72.08 in cash and stock in a deal valued at $12.2 billion. Investors believe MAR got the better of the deal, pushing shares up 1.4%. Best Buy Co Inc (NYSE:BBY) fell 1.3% after being downgraded by analysts at RBC Capital on concerns over deteriorating sales trends in key product categories.
The economic data came in on the soft side, with the November Empire State manufacturing survey coming in well below expectations in what’s the fourth consecutive month of slowdowns. New orders and shipments both dropped.
The economic calendar remains busy this week with Tuesday’s update on industrial production, Wednesday’s Federal Reserve October meeting minutes and a collection of speeches by Fed policymakers later in the week. All are likely to reinforce the likelihood of a rate liftoff next month — the first in nearly a decade.
And with that, stocks are likely to resume their recent bout of weakness as share prices catch down to declines already seen in high-yield corporate bonds and commodities.
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.
