U.S. equities moved higher on Monday as Wall Street returned from a long holiday weekend. Risky assets looked set for a rough opening as the overnight futures market was rattled by a batch of poor economic data on Friday (with retail sales and consumer price inflation missing estimates) and simmering geopolitical tensions. North Korea has been in focus.
While there was no single catalyst for the reversal, the chatter seems to be that soft inflation could encourage the Federal Reserve to soften its pace of rates hikes. Moreover, expectations are high for the first-quarter earnings season as it heats up this week, with 9.2% earnings growth predicted (which would be the strongest since the end of 2011).
In the end, the Dow Jones Industrial Average gained 0.9%, the S&P 500 gained 0.9%, the Nasdaq Composite gained 0.9% and the Russell 2000 gained 1.2%. Treasury bonds were mixed, the dollar was broadly weaker, gold gained 0.3% and crude oil lost 1% amid ongoing oversupply concerns as inventories remain bloated and U.S. shale production ramps up.
Volume was very light, with just 703 million shares on the NYSE representing 78.9% of the 30-day average. Breadth was positive, at 2.9 advancers for each declining issue. Financials led the way with a 1.6% gain while materials were the laggards, up 0.8%. The S&P 500 was unable to retake its 50-day moving average, a sign that bears remain in control of the medium-term trend.
Advanced Micro Devices, Inc. (NASDAQ:AMD) gained 3.9% thanks to a positive M Science analyst note following channel checks of the new Ryzen processor lineup.
Turning back to geopolitics, Vice President Pence said today that the era of “strategic patience” with Pyongyang was over after an apparent missile test failed over the weekend. National Security adviser HR McMaster said over the weekend that President Trump “will take action” to protect the American people from the North Korean aggression. Bloomberg cited a White House official that said Trump is willing to consider ordering a “kinetic” military action, including a sudden strike, to address North Korea’s actions in the region.
And reviewing Friday’s economic data: The CPI posted its first month-over-month decline since January 2010 (the prices of core goods fell at its largest rate since November 2006) while retail sales posted the weakest back-to-back reading in two years.
The Q1 earnings season heats up Tuesday with Bank of America Corp (NYSE:BAC) and Goldman Sachs Group Inc (NYSE:GS) reporting results before the bell. Analysts are looking for BAC earnings of 35 cents per share on revenues of $21.7 billion while GS earnings are expected to total $2.68 per share on $8.3 billion in revenue. International Business Machines Corp. (NYSE:IBM) and Yahoo! Inc. (NASDAQ:YHOO) will report after the close.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.