Commodities, especially gold, silver and copper, chalked up big gains yesterday, and stocks associated with them rose, as well.
Energy and materials stocks led a broad-based advance, which, at one point, looked like it would break the S&P 500 (SPX) into new highs.
The International Monetary Fund (IMF) said that the global recovery may begin early next year, and that drove stocks in Asia higher and pushed up gold, which traded above $1,000 an ounce at one point.
The only loser seemed to be the U.S. dollar, which fell again versus a basket of world currencies — hitting an 11-month low following a comment by the U.N. that the dollar should be replaced by a new global reserve currency.
The only corporate news of note was that Cadbury PLC (CBY) refused a $16.7 billion offer from Dow member Kraft (KFT). Cadbury’s stock responded by gaining more than 14%, as talk of a possible bidding war might drive its price even higher.
At the close, the Dow Jones Industrial Average (DJI) gained 56 points to 9,497, the S&P 500 rose 9 points to 1,025, and the Nasdaq (NASD) gained 19 points at 2,038.
The NYSE traded 1.3 billion shares with advancers ahead of decliners by 3-to-1. The Nasdaq traded just 606 million shares with advancers ahead by 8-to-5.
October crude oil rose $3.08 to $71.10 a barrel, and the Energy Select Sector SPDR (XLE) gained $1.40, closing at $52.36.
>
Despite the day’s big gain, crude oil must drive through the quadruple-top at $75 if it is to establish a new bull market. But if it does, the next target would be $95 a barrel.
Precious metals received a lot of attention yesterday with gold the leader. The December contract rose $3.10 to $999.80 and got as high as $1,009.70. The PHLX Gold/Silver Index (XAU) gained 23 cents at $166.48.
What the Markets Are Saying
While the bears growl that the economics don’t support higher prices, the bulls continue the climb despite the clawing from the caves.
Yesterday, the S&P 500 took a giant leap to challenging the highs of our oft-mentioned bull channel.
After three days away, buyers just couldn’t wait to jump on their favorites and gapped that broad-based index by 15 points on the opening bell.
Since the gap leaped through the 20-day moving average, this could lead to a new high despite the likelihood of the gap closing at some point in the next week. But wouldn’t it be nice if it turned out to be a breakaway with several more to come?
Yesterday’s favorite equities were concentrated in the commodities-based industries along with the non-U.S.-based ETFs.
>
Clearly a weakening dollar has something to do with these gains, but the longer-range economic forecasts, like those from the International Monetary Fund, are now confirming that the stock market has again proven to be the best of all forward indicators.
Meanwhile, there are those who are still out of the market and scratching their heads at the force of the advance in the face of higher unemployment numbers — a lagging indicator.
This stubborn reliance on the unemployment rate as a standard measure of the health of the economy will continue to keep many out of equities despite the fact that by the time the rate starts to decline the economy will have been advancing for many months.
As I said yesterday, the strongest ETF groups continue to be U.S. small caps, precious metals and other commodities, international and U.S. mid caps.
Today’s Trading Landscape
Earnings to be reported include: K12 (LRN), Men’s Wearhouse (MW), Navistar International Corp. (NAV), Shuffle Master (SHFL), Signet Jewelers Ltd. (SIG), Smith & Wesson Holding Corp. (SWHC), Spartech Corp. (SEH), Talbots (TLB), Titan Machinery (TITN), United Natural Foods (UNFI) and Zale Corp. (ZLC).
Economic reports due: MBA purchase applications, Redbook, Federal Reserve Beige Book and API oil industry report.
3 Cheap, Recession-Busting Stocks. These low-priced stocks are truly undervalued. Get in now — before they’re discovered and take off!
