U.S. equities pushed to new highs on Wednesday thanks to ongoing excitement over aggressive new action by President Donald Trump in areas such as border security and immigration amid a heavy flow of fourth-quarter earnings results.
The move ends a two-month flirtation with the 20,000 level and recent evidence that post-election uptrend was stalling — including narrowing breadth, overly extended sentiment measures and signs “smart money” traders are increasingly betting against stock prices.
In the end, the Dow Jones Industrial Average gained 0.8%, the S&P 500 gained 0.8%, the Nasdaq Composite gained 1% and the Russell 2000 gained 1%. Treasury bonds were weaker, the dollar was down, gold lost 1.1% and crude oil lost 0.8% on inventory.
Financials led the way with a 1.7% gain, followed by technology stocks up 1.1%. Yield-sensitive stocks were the laggards, with REITs down 0.7%, telecoms down 0.2%, and utilities down a fraction.
The reversal of recent strength in Treasury bonds was the cross asset theme of the day, with banks benefiting on net interest margin hopes while dividend stocks were slammed on revaluation drags.
Among individual names, recreational vehicle maker Arctic Cat Inc (NASDAQ:ACAT) gained nearly 42% after news it would be acquired by Textron, Inc. (NYSE:TXT) in a near-$250 million deal. Hard drive maker Seagate Technology PLC (NASDAQ:STX) gained 14% on a big fiscal Q2 earnings beat on better revenues as margins came in above consensus thanks to solid hard drive pricing.
Computer peripheral maker Logitech International SA (USA) (NASDAQ:LOGI) gained 13.5% thanks to a big earnings beat on record retail revenue with strength in speakers and gaming. Margins were ahead of estimates on cost reductions and supply-chain efficiencies.
On the downside, TXT fell 5.4% on a top- and bottom-line miss on weakness in its aviation segment. Restaurateur Brinker International, Inc. (NYSE:EAT) fell 6.2% on an earnings and revenue miss on a 2.9% drop in comp-store sales with Chili’s down 3.3%. AK Steel Holding Corporation (NYSE:AKS) fell 4.8% on a downgrade from analysts at JPMorgan. And Freeport-McMoRan Inc (NYSE:FCX) fell 3.8% on a top- and bottom-line miss driven by higher mining costs.
Overall, the result was the market’s best day in seven weeks but has the hallmarks of a blowoff, head fake move ahead of what’s sure to be a very hawkish Federal Reserve policy meeting next week. Volatility, as measured by the CBOE Volatility Index (INDEXCBOE:VIX), fell to its second lowest level in 10 years.
This is what euphoria looks like. Is it justified? That depends on how aggressively Fed Board Chair Janet Yellen leans against the “Trump-flation” and asset price increase. All evidence suggests she isn’t enthused at a time when the labor market is near capacity, housing costs are rising fast and consumer inflation has already surged back over her 2% target.