On Wednesday, stocks advanced as crude-oil prices (WTI) jumped 2.3% to $49.83 per barrel due to a decline in stockpiles and group rotation from income stocks. The Dow industrials rose 0.6%, the S&P 500 gained 0.4% and the Nasdaq rose 0.5%.
The sectors that were hardest hit yesterday were telecommunications, real estate, utilities and consumer-staples. These sectors fell between 1.9% and 0.2%. But seven sectors advanced between 0.7% and 1.5%. These were led by financials, energy and materials.
A rebound in several of the Federal Reserve’s key measurements suggests that the economy is advancing slowly. One, GDP — a measure of output — was up 1.4% in the second quarter, and the ISM’s manufacturing index (published on Monday) rose to 51.5 in September from 49.4 in August, its highest level in a year.
The reports and expectation led money managers to rotate out of protective, high-yielding stocks and into more aggressive investments.
At the close the Dow Jones Industrial Average rose 113 points, closing at 18,281; the S&P 500 gained 9 at 2,169; and the Nasdaq added 26 points at 5,316. The Russell 2000 gained 9 to close at 1,248. The NYSE’s primary exchange traded 986 million shares with total volume of 3.8 billion shares. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 1.6-to-1, and on the Nasdaq, advancers led by 2.2-to-1. Blocks on the NYSE fell slightly to 5,000 from 5,151 on Tuesday.
The U.S dollar rallied for the last three days, based on an expected rate increase in near-term yields in December. This expectation is supported by data on which the Fed says it relies.
But note the difficulty on the chart of the UUP to punch through resistance at its bearish resistance line at 24.95 and its 200-day moving average at 24.86. The stock has had difficulties at these resistance lines as far back as December 2015, January, and most recently in July when it briefly penetrated its 200-day moving average but failed at the resistance line.
This time it may be different, since higher volume is accompanying the advance.
The Utilities Spider ETF (NYSEARCA:XLU) illustrates a very-high-volume sell-off in utilities as money managers shift to more aggressive sectors. Yesterday the support line of the channel that began six months ago was violated, and its 200-day moving average, which has held for over a year, fell to sellers on Monday.
For those who favor my now-familiar 17-month moving average of the S&P 500: it is back. And despite a slight turndown, the trend is strongly bullish following the first-ever quadruple cluster of signals, which ended in a final buy signal.
That signal is strong and has held for four months.
Conclusion: The market is telling us that the Fed will raise rates before year end. Perhaps this time it will occur. Thus, investors would be wise to load up on stocks that should benefit from rising rates and to stay away from those that will not, like exporters, precious metals and commodities priced in dollars.
Use this week’s list of winners and losers as a guide. And the sell-off will also provide some bargains, chiefly in the high-yielding utility stocks.
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.
