The rally in U.S. stocks on Tuesday hardly seems like cause for celebration. A 6% rally in the S&P 500 and a modestly higher gain for the NASDAQ Composite both are better than the alternative. But the bounce recaptured less than half of Monday’s losses. The bear market persists.
But investors looking for reasons for optimism can find some in Tuesday’s gains. Among them is the fact that a few sectors did particularly well. Those sectors generally are those which should see relatively modest impact from what has become a nationwide shutdown to prevent the spread of the coronavirus.
After a stretch where U.S. stocks sold off almost indiscriminately, a return to stock-picking — or at least sector-picking — might be a step in the right direction. Wednesday’s big stock charts focus on three of the sectors that won on Tuesday. If these stocks, and their sectors, can keep the momentum going, there might be hope for the rest of the market as well.
Consolidated Edison (ED)
A utility stock like Consolidated Edison (NYSE:ED) is supposed to be a safe, boring investment. As the first of Wednesday’s big stock charts shows, of late ED stock has not been that:
- By the recent standards of the market, volatility of late has not been out of line. By sector norms, trading over the past month has been astounding. ED stock dropped nearly 20% in a matter of sessions last month, and rallied by roughly the same amount this month. Simply put, utility stocks are not supposed to trade like that.
- But after the 18% rally on Tuesday, ED stock looks a bit back to normal. That’s not to say the news necessarily is good: the stock now trades just shy of resistance that has held repeatedly going back to late September.
Still, that’s normalcy. The same is not quite as true for the sector, at least as measured by the Utilities Select Sector SPDR Fund (NYSEARCA:XLU). XLU rallied a stunning 12.7% on Tuesday, yet still sits well below support that broke earlier this month.
- Given the industry should have minimal impact from the coronavirus, beyond potentially delayed payments from sick and/or struggling customers, there could and maybe should be more upside ahead. Tuesday’s rally in both ConEd stock and in the ETF suggest investors are at least willing to consider that possibility, which is progress.
Gold miners like NovaGold (NYSE:NG) saw a somewhat surprising decline amid the worst of the sell-off. But the second of our big stock charts suggests investors figured out the decline had gone too far:
- In early trading Monday, NG stock touched a low of $4.65. Shares rallied 88% since. Outside of that brief decline, support has held, and the stock now is threatening an eight-year high reached last month.
- As with utilities, the decline in the sector looks surprising — and illogical. Gold prices in fact have risen amid broader fears, which obviously should be bullish for miners. The yellow metal did see a swift pullback of its own, but even at its lows only traded back at November levels. NG stock obviously did not do the same.
It’s worth wondering whether the easy money has been made, at least in NG stock. For junior miners, however, there may be more upside. That sector as measured by the VanEck Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) still trades well below its highs even with the underlying commodity down just 10%. It too has snapped back, but if the market is going to be more rational, or at least more discriminating, GDXJ and NG both could move even closer to last month’s highs.
Hain Celestial (HAIN)
Food stocks like organic and natural manufacturer Hain Celestial (NASDAQ:HAIN) have been among this week’s biggest winners. The third of Wednesday’s big stock charts shows just how big the gains in HAIN have been, but raises the question as to whether the rally is nearing an end:
- At Monday lows, HAIN was down 15% from Friday’s close. But here, too, support held and the stock skyrocketed. HAIN has rallied 47% since.
- It’s not alone. As highlighted in Tuesday’s Big Stock Charts, the likes of J.M. Smucker (NYSE:SJM) and Conagra Brands (NYSE:CAG) rallied on Monday. Those stocks continued to rise on Tuesday, while McCormick (NYSE:MKC,NYSE:MKC.V) and Hormel Foods (NYSE:HRL) gained over 13%. Retailers Walmart (NYSE:WMT) and Kroger (NYSE:KR) bounced strongly as well.
- In other words, defensive stocks finally acted like defensive stocks, outperforming in a nervous market. The question for HAIN is whether that trend will hold — and whether it’s considered quite as defensive as other category names. With the stock at 24x forward earnings, and challenging past highs, it does seem likely the gains of the last two days have captured much of the potential upside.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.