Stocks continued their rebound for the second consecutive day on Monday, recovering from a mid-day dip into negative territory. While the major averages remain below their 50-day moving averages, the test of the 200-day average at the lows on Friday seems to be holding … for now.
In the end, the Dow Jones Industrial Average gained 1.7%, the S&P 500 gained 1.4%, the Nasdaq Composite gained 1.6% and the Russell 2000 gained 0.9%. Treasury bonds weakened slightly, pushing the 10-year yield up to 2.86%. The dollar weakened. And both gold and crude oil moved higher.
Breadth was heavily positive, with advancers outpacing decliners by a ratio of 2.7-to-1 on the NYSE. Up volume accounted for 79% of total volume. And there were 11 new highs vs. 80 new lows. Big tech momentum favorites powered the day, with Apple Inc. (NASDAQ:AAPL) up 4% and Amazon.com, Inc. (NASDAQ:AMZN) up 3.5%. Semiconductors, banks and smaller oil plays were on the move as well.
Volume remains a problem. More specifically, a lack thereof with trading activity last week falling below the lows of the crisis peak in 2008. So trading is likely to remain jagged and uneven.
Despite appearances, we’re not out of the woods just yet with bonds — both Treasury bonds and high-yield “junk” corporate bonds — looking vulnerable to another lurch lower that will boost yields. This, as you recall, was the original motivation for this two-week-old correction.
All eyes are on Wednesday’s Consumer Price Inflation report. If it comes in strong, above the 2% consensus estimate, it will confirm the fears of rising prices suggested by the February jobs report; reinforcing the idea that at the Federal Reserve under new chairman Jerome Powell will be decidedly more hawkish. And thus, credit costs are set to rise even further, weighing on bond prices.
On a related note, the White House unveiled its 2019 budget and infrastructure plan today. Both threaten to blow out the budget, increase the Treasury Department’s borrowing needs, and further increase the pressure on T-bond prices (and thus, lifting yields).
No wonder then that both Goldman Sachs and Bank of America Merrill Lynch are warning investors that the selling isn’t over yet and that rallies are to be sold. At least, until the Fed is forced to step in an soothe markets. Which at this late juncture, won’t happen until the market decline threatens the economy and employment gains.
At least another 10% down, in my view.
Check out Serge Berger’s Trade of the Day for Feb. 13.
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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