Stocks rallied Monday due to an increase in oil prices, weakness in the U.S. dollar and a rebound in technology stocks.
The market has been volatile recently, with The Wall Street Journal noting the Dow Jones Industrial Average has seen four daily swings of at least 1% in the past week.
Technology stocks were among the day’s best performers with the Nasdaq up 1.2%. However, traders noted that a similar advance last Tuesday was followed by an almost equally big decline on Wednesday.
The gains in tech were largely the result of the announcement that Warren Buffett’s Berkshire Hathaway Inc. (BRK.B) took a $1 billion position in Apple Inc. (AAPL) in Q1. AAPL jumped 3.7% on the day, while NVIDIA Corporation (NVDA) and Activision Blizzard, Inc. (ATVI) both rose roughly 3% in response.
But it was energy stocks that really shone, up 1.7%, as crude oil jumped 3.3% to $47.72 a barrel. Notable gainers included Anadarko Petroleum Corporation (APC), up 3%, and Williams Companies Inc (WMB), up 6.4%.
The rally in crude was attributed to outages from producers in Canada and Nigeria that created the first supply shortfall in almost two years, according to Goldman Sachs Group Inc (GS). The investment firm now predicts oil will trade above $50 a barrel in the second half of the year.
In U.S. economic news, the Empire State manufacturing survey’s reading of -9.0 for May missed the consensus expectation of 7.25 by a long shot.
And all is not well in China, as recent reports raised concerns about the country’s industrial production and retail sales despite monetary stimulus from the highly controlled banking system. Yet, Asian markets were modestly higher Monday.
Gold advanced 0.1% to $1,273.40 an ounce. And the yield on the 10-year Treasury note rose to 1.75% from 1.71% on Friday.
At Monday’s close, the Dow Jones Industrial Average gained 175 points at 17,711, the S&P 500 rose 20 points to 2,067, the Nasdaq added 58 points at 4,775, and the Russell 2000 jumped 14 points to 1,116.
The NYSE Composite’s primary exchange traded 884 million shares with total volume of 3.5 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 3.2-to-1. On the Nasdaq, advancers led by 2.3-to-1. Block trades on the NYSE declined to 5,120 from 5,198 on Friday and 5,730 a week ago.
The rally in tech stocks pushed the Nasdaq to challenge the downtrend line drawn from the mid-April high. But three moving averages have converged just above Monday’s high. The confluence of the 20-day at 4,813, the 50-day at 4,817 and the 200-day at 4,824 presents significant resistance. But if pierced, it could prove to be the turning point that moves the index from a bearish to bullish trend.
Conclusion
Monday’s rally was mostly due to two surprise factors: Buffett’s new position in Apple and news of an oil supply shortfall. But the overall investment outlook remains cloudy.
Jeff Saut of Raymond James brought up the idea of “penultimate preparedness” from Peter Lynch’s “One Up On Wall Street,” where the former manager of the Fidelity Magellan Fund said:
We’re still looking backward for signs of the upcoming menace, but that’s only if we can decide what the upcoming menace is. Not long ago, people were worried that oil prices would drop to $5 a barrel and we’d have a depression. Two years before that, those same people were worried that oil prices would rise to $100 a barrel and we’d have a depression. Once they were scared that the money supply was growing too fast. Now they’re scared that it’s growing too slow. The last time we prepared for inflation we got a recession, and then at the end of the recession we prepared for more recession and we got inflation…
This ‘penultimate preparedness,’ is our way of making up for the fact that we didn’t see the last thing coming along in the first place.
Saut went on to say: “Well, this time around you can take your pick about the ‘upcoming menace’ from: A) Recession; B) Banking Crisis; C) War in the Middle-East; D) Inflation or Deflation; E) Presidential race; F) All of the Above, and more.”
With so many risks already priced into the market, perhaps the current prices reflect value and stocks are headed higher. Then again, perhaps not.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
