U.S. equities pushed higher on Monday amid quiet, drama-free trading as traders largely ignored word overnight that German Chancellor Angela Merkel’s government could be forced to dissolve as coalition negotiations broke down.
In the end, the Dow Jones Industrial Average gained 0.3%, the S&P 500 wafted up 0.1%, the Nasdaq Composite jumped 0.1% and the Russell 2000 added 0.7%. Elsewhere: Treasury bonds weakened, the dollar strengthened, gold lost 1.6% and crude oil fell 0.5%.
Breadth was positive with 1.5 advancing issues for every decliner. Volume was light, at 86% of the NYSE’s 30-day average. Telecom led the way with a 1% gain, with financials just behind, rising 0.5%. Healthcare was the laggard, down 0.4%.
Continuing the flurry of semiconductor M&A activity, Cavium Inc (NASDAQ:CAVM) gained 10.8% after agreeing to be acquired by Marvell Technology Group Inc (NYSE:MRVL), which gained 6.4%. Alibaba Group Holdings Ltd (NYSE:BABA) gained 1.6% after announcing a $2.9 billion investment for a 36% stake for China’s second-largest big-box retailer.
On the downside, Jack in the Box Inc. (NASDAQ:JACK) lost 2% after being downgraded by Wedbush Securities on concern about forward guidance and valuations.
Checking in on the tax reform machinations, there was no new notable developments with the Senate on track for a vote on the GOP’s proposal after the Thanksgiving holiday. The path is narrow, however, with Senator Susan Collins (R-ME) becoming the latest to express reservations about the legislation.
Potential hang ups include the dumping of Obamacare’s individual mandate, the loss of the state and local tax deduction, and whether middle-class tax cuts will be made permanent.
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Overall, trading had a very artificial, machine-manipulated feel today as an overnight dump in the euro was aggressively reversed (and thus, pushing up equities) before correcting back down to its lows. But the rally in stocks and other risk assets held. Likely by design.
The news out of Germany is a big deal since the reappearance of political risk could undermine the façade the European Central Bank has created. The sovereign debt crisis there has been papered over with billions in central bank largesse; even as structural issues like over-indebtedness and a lack of economic competitiveness remain.
Watch for the trigger of last week’s weakness — high-yield corporate bonds — to reassert itself with the HYG fund looking ready for a resumption of its recent downtrend. As a reminder, an upward drift in inflation and Federal Reserve policy tightening expectations has been weighing on the credit markets.
Losses here will eventually spill over into equities. Especially since debt-fueled share buybacks have been the primary source of buying power for this bull market.
Check out Serge Berger’s Trade of the Day for Nov. 21.
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.
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