U.S. stocks hit new highs on Monday after Senate Democrats shifted position and expressed their support for a short-term continuing resolution that funds the government through the beginning of February in exchange for a commitment from Republican leaders to hold a vote on immigration.
The deal ends an over-the-weekend shutdown and was greeted with cheers on Wall Street. But this merely raises the stakes as the next funding deadline will be dangerously close to the debt ceiling, which has also been a bigger issue for the financial markets. President Trump is expected to sign the fix later today.
In the end, the Dow Jones Industrial Average gained 0.6%, the S&P 500 gained 0.8%, the Nasdaq Composite gained 1% and the Russell 2000 gained 0.5%. Treasury bonds were mixed along with the dollar. Crude oil gained a touch. And gold added 70 cents to close at $1,331.90 an ounce.
Advancers outpaced decliners by nearly a 2-to-1 ratio with 281 new highs on the NYSE vs. 57 new lows. General Electric Company (NYSE:GE) was the most active issue, falling 3% as it continues to suffer weakness amid doubts about its corporate turnaround plan. ADT Inc (NYSE:ADT) fell 8%.
Oil and gas stocks were strong thanks to the performance of oilfield services names like Halliburton Company (NYSE:HAL), which surged 6.4% after reporting better-than-expected earnings before the open. Earnings of 53-cents-per-share beat the 46 consensus estimate on revenues of $5.9 billion.
Amazon.com, Inc. (NASDAQ:AMZN) gained 2.5% to hit a new all-time high after opening its first cashier-less Amazon GO store in Seattle. After the close, Netflix, Inc. (NASDAQ:NFLX) surged to a new high rising more than 9% after hours in the wake of stronger-than-expected quarterly results on a surge in international subscribers.
A deepening cash burn rate, related to the need to fund exclusive content to fund its subscriber growth, was dismissed by investors.
Conclusion
Investors, in their enthusiasm, seem to be ignoring a few critical truths. For one, today’s agreement is merely a short-term extension that is causing great anger among the Democrat base for a failure of leadership to extract concessions from Republicans. This makes the next standoff more likely to be a drawn out affair, as Republicans will feel emboldened and Democrats more desperate heading into the mid-term elections.
And while stocks celebrated, bonds and the U.S. dollar continue to trade very weakly on a combination of inflation fears, Federal Reserve policy tightening expectations and a creeping sense that a 2011-style debt ceiling showdown is coming.
Stocks are also extremely overbought with sentiment and investor positioning white hot. Tread cautiously.
Check out Serge Berger’s Trade of the Day for Jan. 23.
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 the 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.
