December got off to a solid start on Wall Street thanks to typical first-of-the-month portfolio inflows and a batch of disappointing economic data which bolstered hopes that maybe, just maybe, the Federal Reserve won’t raise interest rates for the first time since 2006 later this month.
Headlines were busy, with attention paid to slowing Chinese factory activity, comments from Chicago Fed President Charles Evans that he was nervous about the upcoming rates decision, and anticipation for Thursday’s policy meeting at the European Central Bank.
In the end, the Dow Jones Industrial Average gained 1%, the S&P 500 gained 1.1%, the Nasdaq Composite gained 0.9%, and the Russell 2000 gained 0.5%. Treasury bonds were stronger (yields lower), the dollar was weaker, gold gained 0.3%, and crude oil was basically unchanged.
Healthcare stocks led the way with a 1.7% gain followed by financials, which rose 1.3%. Eli Lilly (LLY) gained 5.4% after analysts at Barclays resumed coverage with an “overweight” rating (prior rating was “equal weight”) on the likely outperformance of Cyramza and Jardiance, drugs used to fight cancer and type-2 diabetes.
Telecom stocks lagged with a 0.4% gain. Mining equipment maker Joy Global (JOY) dropped 13.2% after it was downgraded by Bank of America Merrill Lynch analysts as the outlook for coal and industrial metal miners is as bleak as ever. Cummins (CMI) lost 7.9% after BofA Merrill Lynch analysts noted the U.S. truck market is weakening faster than anticipated.
On the economic front, the ISM manufacturing index dropped into contractionary territory for the first time since 2012 on weakness in new orders and production.
Specifically, the index fell to 48.6 in November from 50.1 in October. This was well below the 50.5 reading expected and the 50.0 level that demarcates month-over-month expansion vs. contraction. New orders fell four points to 48.9 while production dropped 3.7 points to 49.2. This is the weakest overall result since June 2009, which is sort of shocking.
Adding to the dour outlook for manufacturing were weaker-than-expected U.S. auto sales figures with General Motors (GM) and Ford (F) both missing the mark. Ford sales grew 0.3% (vs. the 3.2% expected) while GM sales grew 1.5% (vs. the 2.9%) expected. Fiat Chrysler (FCAU) was closer to the mark with sales growth of 3.0% (vs. 3.2% expected). Volkswagen’s sales dropped 25% in the wake of the emissions cheating scandal.
There was also chatter about the seasonal strength of Decembers in general and whether we’re on the verge of another “Santa Claus” rally. Over the last 65 years, the S&P 500 has gained an average of 1.7% in December. It is worth noting, however, that Santa gains typically occur in the days just before and just following the New Year’s holiday.
For now, I’m watching the surge by the Market Vectors Gold Miners (GDX) with great interest. The ETF broke above its 20-day moving average for the first time since early October, and weaker economic data and rising odds of new rate hike from the Fed this month will bolster inflation expectations and weaken the dollar.
Edge subscribers enjoyed a 6.8% gain in their Kinross Gold (KGC) position, which is up nearly 11% so far. Edge Pro subscribers are enjoying a 13% gain in their December $13 Silver Wheaton (SLW) calls.
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.
