On Monday the post-election rally continued with a quad of new highs. The Dow Jones Industrial Average, the S&P 500, Russell 2000 and Nasdaq Composite all closed at new all-time closing highs.
While a “risk-on” strategy has been confirmed following the election, investors have focused on banks, healthcare stocks and industrials, along with energy.
Energy stocks rose sharply yesterday along with crude oil, which gained 3.9% to $47.49 per barrel. Comments from the Iranian oil minister that the cartel will probably reach a consensus at its Nov. 30 meeting to cut, or put production caps in place, were attributed to the gains. Marathon Petroleum Corporation (NYSE:MRO) rose 8.9%, Chesapeake Energy Corporation (NYSE:CHK) jumped 7.07%, and Occidental Petroleum Corporation (NYSE:OXY) gained 1.48%.
At the close the Dow Jones Industrial Average gained 89 points at 18,957, the S&P 500 gained 16 at 2,198, the Nasdaq jumped 47 landing at 5,369, and the Russell 2000 closed at 1,322 for a gain of 7. The NYSE’s primary exchange traded 864 million shares with total volume of 3.6 billion shares, and the Nasdaq crossed 1.7 billion shares.
On the Big Board, advancers outpaced decliners by 3-to-1, and on the Nasdaq, advancers led by 1.45-to-1. Blocks on the NYSE fell to 4,816 from 5,324 on Friday.
In typical November/December action, all three of the major indices broke to new closing highs on the same day. It was satisfying to have the S&P 500 close at a new high with the technical picture above it wide open to another advance. But as noted, it was the small-caps that led the charge.
For a time in October it didn’t appear likely that the small-caps would turn and acquire enough buyers to obliterate its old high made in June ’15. And even though it and the other indices appear overbought on the MACD indicator, it is a joy to have nothing above the current close but open space.
Conclusion
The break to new closing highs by the three most-watched indices is proof that the rally is likely to continue despite the S&P’s current P/E of 20.1X its last 12 months earnings. The breakout and extraordinary gains are attributed to President-elect Trump’s promise to reduce business costs through a reduction in taxes and onerous paperwork. Banks should prosper from higher interest rate spreads and a reduction in the Fed’s over-supervision.
Thus, the outlook for stocks is positive in a holiday week that is not known for high achievement. And don’t be fooled by the “overbought” MACD. It can and probably will become more overbought before a serious correction takes place.
