U.S. equities continued their post-election shenanigans on Monday, with industrial and financial stocks surging (on fiscal stimulus and net interest margin catalysts), but most of the rest of the market wilting. Bonds remain weak, while emerging market assets were hammered on fears President-elect Donald Trump will tighten trade terms.
In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 lost a fraction, the Nasdaq Composite lost 0.4% and the Russell 2000 finished 1.3% higher.
Treasury bonds were weaker, the dollar continued its strength, gold lost 0.2% to fall to its lowest level since June and oil fell 0.2% after recovering from deeper losses. The iShares 20+ Year Treasury Bond (NASDAQ:TLT) lost another 0.6% to fall to lows not seen since January, as the U.S. 10-year yield increased to 2.26% while the 30-year yield pushed through 3%. That boosted the ProShares Ultra-Short Treasury (NYSEARCA:TBT) recommended to Edge subscribers 1.1% to a total gain of 26.7% since recommended in August.
Financial stocks gained 2.3% thanks to profitability tailwinds from higher long-term interest rates. REITs got some relief from recent weakness, rising 1.9%. Steel stocks were on fire, with AK Steel Holding Corporation (NYSE:AKS) up 10.4% after an upgrade by analysts at Morgan Stanley citing the cross section of possible trade protectionism and infrastructure spending under Trump, both of which will benefit the company.
Car electronics and stereo manufacturer Harman International Industries Inc (NYSE:HAR) gained 25.2% on news it would be acquired by Samsung electronics in a $8 billion deal representing a 28% premium to Friday’s close.
Technology stocks were the laggards, down 1.7% as a group. Apple Inc. (NASDAQ:AAPL) fell 2.5% after the Chinese press warned Trump that any trade protectionism could result in higher prices for consumers on imported devices manufactured in China such as the iPhone. That lifted the Nov $110 AAPL puts recommended to Edge Pro subscribers to a gain of 343%.
On a technical basis, the situation remains fragile on narrow buying demand. There were just 106 net advancing issues on the New York Stock Exchange, down nearly 60% from Friday’s advance and well below the nearly 2,000 net advancing issues seen last Monday during the “Hooray Hillary!” relief rally.
And while the Dow is pushing to new highs, most of the market remains below the 2014-2015 highs, as shown in the chart of the NYSE Composite Index above.
Investors are, for now, ignoring the downside implications from the weakness in bond market as well as the turmoil in overseas markets.
With the Federal Reserve just weeks away from another rate hike — which will accelerate these trends — it’s only a matter of time before the Dow is forced to consider the downside implications of higher interest rates, bond market losses, and foreign currency volatility.