Dow Jones Inches Closer to 20,000

U.S. equities continued their post-election, pre-holiday climb on Tuesday with the Dow Jones Industrial Average inching ever closer to the 20,000 threshold. News flow was light, focused on terror attacks in Europe and the prospect of fiscal policy easing from the incoming Trump Administration.

In the end, the Dow gained 0.5%, the S&P 500 gained 0.4%, the Nasdaq Composite wafted up 0.5% and the Russell 2000 gained 0.9%. Treasury bonds were mostly weaker, the dollar was higher, gold lost 0.9% and crude oil gained 0.5% and climbed further after the close on an inventory draw.

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Financial stocks led the way again on the backup in rates, fueling net interest margin hopes and rising 1.1% as a group. Consumer staples and energy stocks were the laggards down 0.3% and 0.2%, respectively.

Fred’s, Inc. (NASDAQ:FRED) agreed to buy 865 stores from Rite Aid Corporation (NYSE:RAD) for $950 million in cash, increasing the company’s footprint to become the third-largest drugstore chain. Chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD) gained 5% on an upgrade from analysts at Mizuho on opportunities for the company’s new chipset to power servers driving the AI/machine learning buildout. General Mills, Inc. (NYSE:GIS) fell 2.6% on weaker-than-expected quarterly results on lighter U.S. volumes on light yogurt and refrigerated dough sales.

On the economic front, focus was on the overnight policy announcement from the Bank of Japan. While no changes were made to its interest rate and asset purchase programs, policymakers updated their economic assessments for the first time since May 2015 removing references to sluggishness stemming from the slowdown in emerging market economies. They added a note on the pickup in exports and industrial production as well as the improvement in business sentiment.

The Dow looks all but certain to cross the 20,000 threshold for the first time this week, given the market’s long history with nabbing new highs ahead of holiday closures. The Dow crossed 18,000 for the first time around Christmas 2014. The Nasdaq 100 hit a new high ahead of Thanksgiving 2014 and Thanksgiving 2015. And large-caps broke out of their three-year trading range ahead of Independence Day 2016 thanks, in part, to the post-Brexit rebound.

The Dow came less than 13 points from the 20,000 level in mid-day trading on Tuesday. Given a lack of negative catalyst, upward momentum, and a slight positive shift in seasonality, watch for a breakout ahead of the long holiday weekend. Markets are closed on Monday.

Once the festivities end, and the new year begins, some disappointment is likely to set in. The Fed looks set to ramp up its rate hike path. President-elect Trump’s fiscal stimulus plans will need to go through the budget hawks in Congress and contend with rising interest expenses for the U.S. Treasury. Emerging market economies look vulnerable to the surge in the U.S. dollar, increasing the cost of dollar-denominated debts.

And finally market breadth remains tepid with just 70% of the stocks in the S&P 500 in uptrends versus near-80% seen back in April.

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For now, I have recommended clients book long-side profits — including a 22.3% rise in the ProShares UltraShort Yen (NYSEARCA:YCS) recommended to Edge subscribers on Nov. 10 and the 193% rise in the Dec $87.50 Exxon Mobil Corporation (NYSE:XOM) calls recommended to Edge Pro subscribers on Nov. 15 — in exchange for a small short position against emerging market stocks.

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.

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