U.S. equities rebounded strongly on Thursday as the House GOP passed its tax-reform proposal and the classic buy-the-dip mentality appeared after a couple of weeks of weakness (especially in small-cap stocks).
In the end, the Dow Jones Industrial Average gained 0.8%, the S&P 500 gained 0.8%, the Nasdaq Composite gained 1.3% and the Russell 2000 gained 1.6%. Treasury bonds were weaker, the dollar climbed, gold was little changed, and oil lost 0.3%.
Breadth was heavily positive in what looked and felt like panicked short covering, with advancers outpacing decliners by a 3-to-1 ratio. Volume was actually fairly light, at 92% of the NYSE’s 30-day average. Defensive telecom stocks led the way with a 1.8% gain while energy was the laggard, down 0.6%.
Time (TIME) surged 28% after the New York Times reported the company is back in talks to sell itself to Meredith. Restoration Hardware (RH) surged 25.8% after pre-announcing a sharp third-quarter earnings beat and issued confident forward guidance on healthy sales and membership trends.
Wal-Mart (WMT) gained 10.9% on solid quarterly results on a 2.7% increase in U.S. comp-store sales (versus a 1.9% estimate) with traffic and e-commerce results bright spots. Forward guidance was raised as well, revealing momentum heading into the critical holiday shopping season.
On the downside, Viacom (VIAB) lost 3.7% after reporting weak earnings. Best Buy (BBY) fell 3.6% despite in-line earnings as comp-store sales and profitability missed estimates. Management flagged a drag from hurricanes and weaker mobile revenue on a delayed iPhone launch.
Click to Enlarge Stepping back, it looks like the motivation for the rebound was a massive rebound in junk bonds, weakness in U.S. Treasury bonds (helping risk parity funds), and a big capital injection by the People’s Bank of China. Bitcoin also rebounded, up 40% off of its weekend lows.
What lies ahead depends in large part on the chances that tax reform can get through the Senate. The GOP only maintains a two-vote buffer.
And yesterday, Senator Ron Johnson (R-WI) said he would vote against the bill as it stands now on what he believes is a disproportionate focus on big businesses. A group of other GOP senators has expressed some reservations as well.
A vote on the floor of the Senate isn’t expected until after Thanksgiving, leaving the market in a lull.
While we wait, be sure to check out Tesla’s (TSLA) unveiling of an electric semi truck later today. Shares are down more than 20% from its September highs on concerns about a slower-than-expected Model 3 production ramp.
Check out Serge Berger’s Trade of the Day for Nov. 17.
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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