Financial Newsletter: Stock Market Closes Higher, Energy Stocks Underperform
Equities
(originally released to subscribers on 12/23/2014)
Market Recap
Stocks drifted higher to start the week yesterday, modestly extending last week’s gains despite declines in energy stocks. The S&P 500 added 0.38%.
Futures were higher before the open yesterday as they rallied in sympathy with global shares, which were broadly higher on ECB stimulus hopes and further stabilization in the Russian ruble and global oil prices. (However the gains in oil turned out to be short-lived.)
It was a relatively quiet open and overall quiet morning session in the U.S. equity markets as stocks drifted sideways, largely ignoring mixed economic data (existing home sales missed while the Chicago Fed survey beat).
After lunch, a combination of further short-covering and trader positioning ahead of this morning’s busy economic calendar helped push the S&P 500 to a fresh all-time-high, albeit amid very low volumes. There were no real news catalysts yesterday to speak of.
Trading Color
Looking at the market internals, yesterday’s rally to new all-time highs was not very impressive. The S&P 500 badly underperformed the Dow as they gained 0.38% and 0.87%, respectively. Meanwhile the Nasdaq and Russell 2000 largely traded in line with the S&P.
High-beta stocks actually fell 0.10% yesterday while their low-volatility counterparts added 0.63% on the session.
Looking to sector trading, energy was among the worst performers, which was no surprise given the 3%+ drop in WTI futures. Healthcare was the other big underperformer, falling 1%. Gilead led the way lower, down 13% after the largest US drug-benefit manager chose a medication from competitor AbbVie as the “only Hepatitis C treatment approved for patients.”
Meanwhile industrials, consumer discretionary and staple stocks, tech, and financials all handily outperformed—all rising around 1% on the day.
Bottom Line
Stocks hit new highs yesterday but XLE and JNK both declined for the first time since early last week. We are near year end and volumes and liquidity are low, so we could easily see a continued push higher into year end on “nothing” really, but XLE, JNK and the ruble are still the leading indicators of this market.
If yesterday was the start of another roll over in XLE and JNK, then I do not think you want to be buying this rally. Bottom line, keep watching XLE and JNK.
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