U.S. equities moved to new records on Tuesday thanks to an aggressive $1 trillion infrastructure spending plan proposed not by President Donald Trump, but by Congressional Democrats looking to retake the initiative.
Trump was busy as well, holding a meeting with automaker CEOs urging them to increase American production, issuing executive orders on energy pipelines and beginning the clampdown on the Environmental Protection Agency and its regulatory burdens.
In the end, the Dow Jones Industrial Average gained 0.6%, the S&P 500 gained 0.7%, the Nasdaq Composite gained 0.9% and the Russell 2000 gained 1.6%. Treasury bonds were weaker as the safe haven bid seen last week disappeared, the dollar was higher, gold lost 0.4% and oil gained 0.8% on inventory data.
Material stocks led the way with a 2.5% gain on expectations a surge of federal funding for roads and bridges will boost demand for stuff like steel and cement. Financials followed with a gain of 1.2%. Yield-sensitive telecoms were the laggards, down 2.7%.
Allegheny Technologies Incorporated (NYSE:ATI) surged 31.1% on strong guidance and management comments on next-generation jet engine demand. Action camera maker GoPro Inc (NASDAQ:GPRO) gained 7.8% after estimates were raised by analysts at Pacific Crest citing channel checks and fears of a short squeeze. And Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) gained 3.1% after a fiscal third-quarter earnings beat with revenues 8% ahead of estimates.
On the downside, Verizon Communications Inc. (NYSE:VZ) lost 4.4% after Q4 earnings and wireless operating earnings missed expectations despite revenue upside. Forward guidance also disappointed. Lockheed Martin Corporation (NYSE:LMT) lost 2.2% on weak guidance. Johnson & Johnson (NYSE:JNJ) lost 1.9% on weak sales. And 3M Co (NYSE:MMM) lost 1.4% on a miss in its consumer segment and the weakest organic growth since 2009.
On the economic front, December existing home sales came in at a 5.5 million seasonally adjusted annualized rate, below the 5.5 million expected as higher mortgage rates and higher home prices combined with record low inventory stunted sales.
For now, despite the day’s gains, equities remain range bound within the tight confines of its multi-month trading range. Technical indicators continue to flash red, with breadth narrowing and sentiment off the charts, and “smart money” traders bracing for an increase in volatility. In fact, last month featured the narrowest trading range for the Dow since 1900, capping the quietest four-year period for the stock market ever.
Of course, what’s been enabling all this crushing of volatility has been the historic experiment with ultra-cheap monetary policy from the Federal Reserve — a policy that’s set to change this year. The Fed, which has raised rates only twice this cycle, has penciled in another three quarter-point hikes this year.
Moreover, Fed Board Chair Janet Yellen has recently changed her tune: Before the election (during which Trump accused her of holding rates down to boost stock market prices for Obama) she publicly stated it could be advantageous to let the economy “run hot” for a time, but suddenly a few months later, she now thinks that is a bad idea.
Wall Street will be reminded of Yellen’s suddenly hawkish stance when the Fed holds its next policy meeting at the end of the month.