Despite a lingering risk of further financial crisis, investors turned to both U.S. and global stocks and drove the Dow Jones Industrial Average (DJI) to its highest finish since October 2008. Confirmation of a restructuring of the Dubai World debt was the trigger for buyers to seek a higher return while accepting a higher degree of risk.
But again, the U.S. dollar was hard hit and fell to a 52-week low. And the selling of the dollar gave renewed vigor to commodities. Gold rose by 3.8% to a record high, and gold mining stocks hit new highs, as well, following an upgrade from analysts at JPMorgan Chase (JPM).
All 10 major S&P sectors finished higher, but the financial stocks lagged despite an upgrading by Citigroup (C) of BB&T (BBT) and Fifth Third Bancorp (FITB). Retail stocks rallied to a 1.8% gain after Guess (GES) reported better-than-expected earnings.
At the close, the Dow had gained 127 points to close at 12-month high of 10,472, the S&P 500 (SPX) rose 13 points to 1,109, and the Nasdaq (NASD) gained 31 points to 2,176.
The NYSE traded 1.1 billion shares with advancers ahead of decliners by 4-to-1. On the Nasdaq, advancing stocks held the lead by just over 2-to-1 on volume of 687 million shares.
January crude oil gained $1.09, ending at $78.37 a barrel, and the Energy Select Sector SPDR (XLE) rose 75 cents to $57.57.
Gold drove above $1,200 an ounce; the February contract rose $17.90 to settle at $1,200.20 an ounce. The PHLX Gold/Silver Index (XAU) closed at $192.73, up $9.02.
What the Markets Are Saying
Despite yesterday’s global flight to stocks, within the categories of equity investments the flocks of institutional investors are still running to the relative safety of the blue chips.
The 30 stocks of the Dow Jones Industrial Average were in high demand, and this pushed the index to a new closing high. But despite gains in almost all sectors, the meek buying in the mid- and small-cap stocks was a signal that very little has changed in the last six weeks. Fund buyers are still heading for the Dow 30 instead of taking risk in other areas.
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And despite the closing high in the Dow 30, the Dow Jones Transportation Average (DJT) failed to make a new high, and neither did the Dow Jones Utility Average (DJU), although the utility stocks, with less risk than the transports, did receive some heavy buying.
The Nasdaq created a trading gap up yesterday, but with volume at close to the annual low and the high still a stretch, it would be an overstatement to say that it was a breakaway gap.
However, interest in some of the technology stocks did prop up the Nasdaq. This tells us that when the funds’ buyers return to the market they will no doubt head for the big tech names like Cisco (CSCO), Intel (INTC) and Google (GOOG), which yesterday made a new high.
Overall, with the initial shock of the Dubai financial crisis behind us, I would say that the markets absorbed that potentially horrible news very well — and that is the best news of all. It is also encouraging that the major indices held firm at the first level of support.
But momentum is lagging, so even though the Dow, and perhaps even the S&P 500, will make new highs, the potential for another blast-off is remote.
Traders may want to buy some calls on the Dow for a short-term pop, but most investors will want to be judicious and wait for the right price to take added risk.
Today’s Trading Landscape
Earnings to be reported before the opening include: Charming Shoppes, G-III Apparel, Pantry and Synovis Life Technologies.
Earnings to be reported during trading hours and after the close: Aeropostale, Collective Brands, Dynamex, Jo-Ann Stores, SeaChange, Sigma Designs and Synopsys.
Economic reports due: MBA purchase applications, Challenger job-cut report, ADP employment report, EIA petroleum status report and Beige Book.
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