U.S. equities inched higher on Tuesday, continuing a slow recovery from last week’s politically motivated volatility. Volume is light and trading ranges are tight, but encouraging signs abound if you look in the right places.
In the end, the Dow Jones Industrial Average gained 0.2%, the S&P 500 Index gained 0.2%, the Nasdaq Composite added 0.1% and the Russell 2000 finished higher by 0.3%. Treasury bonds weakened on some curve steepening, the dollar was up breaking a run of six losses over the prior seven sessions, gold lost 0.5% and oil moved 0.7% higher on traders look ahead to Thursday’s OPEC meeting in Vienna.
Breadth was mildly positive, with 1.5 advancing issues for every decliner. Volume was 85% of the NYSE’s 30-day average.
Financials led the way higher with a 0.8% gain. These were among the hardest hit last week — threatening a nasty head-and-shoulders reversal pattern on the Financial Select SPDR Fund (NYSEARCA:XLF) — on fears the “Trump-flation” trade was fading. A recovery now looks to be underway, as shares rally off of critical support as long-term interest rates push higher once more lifting net interest margin expectations.
Grains trader Bunge Ltd (NYSE:BG) gained 16.6% on reports of a takeover approach. Video games maker Take Two Interactive Software Inc (NASDAQ:TTWO) gained 5.5% on solid quarterly results led by GTA Online. Nokia Oyj (ADR) (NYSE:NOK) rose 5.3% on the announcement of a settlement of an intellectual property dispute with Apple Inc. (NASDAQ:AAPL). And JetBlue Airways Corporation (NASDAQ:JBLU) gained 2.4% on raised revenue guidance.
Consumer discretionary stocks were the laggards, down 0.4%, with AutoZone, Inc. (NYSE:AZO) falling 11.8% on weaker-than-expected quarterly results driven by a 0.8% drop in same-store sales vs. the 2.1% increase expected. Take-and-bake pizza maker Papa Murphy’s Holdings Inc (NASDAQ:FRSH) fell 2.6% on a downgrade from analysts at Wells Fargo.
On the economic front, new home sales fell 11.4% from March, which was revised up to the highest rate since October 2007.
All eyes are turning to the release of the latest Federal Reserve meeting minutes on Wednesday for clues as to the pace and timing of possible interest rate hikes through the end of the year. The Fed has raised interest rates by 0.75% since it started its tightening cycle in December 2015.
Pace has accelerated lately as confidence and stock prices have soared since Election Day: Currently, the futures market is pricing in a 78.5% chance of another quarter-point hike on June 14; up from 50.7% a month ago. Through the end of the year, the odds are about 50-50 of another hike on top of this.
But this outlook is far from unanimous as the reappearance of stock market volatility last week (on political headlines and the risk to President Trump’s agenda), an underwhelming Q1 GDP report, and ongoing softness in the economic (with the Citigroup Economic Surprise Index at levels not seen since early 2015) and inflation data.
The meeting minutes will be closely examined for clues as to the Fed’s thinking on these issues.
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.