U.S. equities were unstoppable on Monday, gapping and running from the opening bell and not looking back. The move caps an impressive rally out of the mid-August low that’s been led definitively by small-cap stocks. There was no singular catalyst for the rise, merely a continuation of the “buy it now” mentality that’s kept price aloft despite headwinds including Federal Reserve policy tightening and negative seasonality.
In the end, the Dow Jones Industrial Average gained 0.7%, the S&P 500 gained 0.4%, the Nasdaq Composite gained 0.3% and the Russell 2000 gained 1.3%. Treasury bonds were slightly weaker, the dollar gained, gold lost 0.7% and crude oil fell 2.1% on rising concerns about rising U.S. and OPEC production levels.
Click to Enlarge Breadth was positive, with advancers outpacing decliners 1.8 to 1 with volume at 86.3% of the NYSE’s 30-day average. Materials led the way with a 1.1% gain while REITs were the laggards, down 0.4%.
Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) gained 4.1% in what was a good day for biotech stocks in general. Roku Inc (NASDAQ:ROKU) fell 11.2% to pull back from its impressive post-IPO gains. Nordstrom, Inc. (NYSE:JWN) fell 6.3% after the NY Post reported privatization talks fell apart on financing issues in the wake of the Toys ‘R’ Us bankruptcy. MGM Resorts International (NYSE:MGM) lost 5.6% in reaction to the Las Vegas mass shooting overnight that resulted in more than 50 deaths.
And on the economic front, the August ISM manufacturing index hit its highest level since May 2004.
It seems like nothing will stand in the way of higher prices. Including the Catalonian independence referendum over the weekend and the worst mass shooting in U.S. history. Not sure if we should feel pride or disgust, to be honest.
Even Wall Street is being caught off guard by the ferocity of the uptrend, with the S&P 500 just 70 points below their 2019 end-of-year target. And on a relative-strength indicator basis, the Russell 2000 is at its most overbought since October 1997 after rallying the last 23 days out of 28.
Click to Enlarge The fundamentals are stretched. The recent earnings bounceback was predicated on the lapping of easy oil price lows on a year-over-year basis.
That’s threatening to go in reverse now as crude oil hooks lower. At the same time, valuations are super stretched: Societe Generale notes that global earnings are back to 2014 levels (when energy peaked) yet stock prices are 15% higher.
I’m keeping an eye on Apple Inc. (NASDAQ:AAPL) for a possible lurch down to $150, which could prick some of the enthusiasm in the air, on ongoing iPhone 8/iPhone X production and demand worries.
Check out Serge Berger’s Trade of the Day for Oct. 3.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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