U.S. equities continued their perfect start to 2018 on Tuesday, rising yet again despite turmoil in the bond market and in cryptocurrencies. Also weighing was news overnight that the Bank of Japan had decide to taper its bond purchase program — a major sea change for a central bank that has really typified the extreme post-crisis money printing mentality.
In the end, the Dow Jones Industrial Average gained 0.4%, the Nasdaq Composite gained 0.1%, the S&P 500 gained 0.1%, and the Russell 2000 broke the trend to fall 0.1%. Treasury bonds were hit hard, gold declined, and crude oil gained $1.64 to close at nearly $63-a-barrel.
Breadth was negative, with decliners outpacing advancers 1.7 to 1.2. As the industry level, auto and energy stocks led the way higher with gains of 1.8% and 1.5% respectively. Airlines were the laggards, down 1.3%. Intel Corporation (NASDAQ:INTC) lost 2.5% amid ongoing fallout from the recent news of processor vulnerabilities and the performance cost of needed fixes. Drugmaker Allergan PLC (NYSE:AGN) gained 3%.
The big news was the whipping 119% gain in Eastman Kodak Company (NYSE:KODK) after the company announced it would use blockchain technology to help photographers secure their digital rights.
Conclusion
The breakdown in Treasury bonds prices bears close attention, as it has now pushed the two-year yield above the forward earnings yield on the S&P 500. That’s notable, since stock bulls have been using the “well, there is no other choice for yield” justification for buying stocks at these extended valuation levels.
That’s changing now as bond prices fall and yields rise, potentially causing capital to funnel out of equities and into bonds.
Checking in with Jason Goepfert at SentimenTrader, you can almost hear his mouth dropping as he continues to find new and interesting ways this market is unusual and historic. The S&P 500, for instance, has rallied consistently for the past month, the past three months, and the past six months. It’s also neared or exceeded its upper Bollinger Band on a daily, weekly, and monthly timeframe.
In the past, similar markets have led to short-term pullbacks.
Other oddities include the fact the NYSE Up Issues Ratio was less than 43%, well below what is typical for a day when large-caps hit a new multiyear high. The only other recent days like that were July 7, 1999 and Feb. 17, 2015. Both led to near-term pullbacks.
And finally, the CBOE Volatility Index actually rose on the day. There has never been a day like Tuesday — new high, poor breadth, rising VIX — since the data started being collected.
Check out Serge Berger’s Trade of the Day for Jan. 10.
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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Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
