Stocks pushed higher on Thursday in a technical test of the S&P 500’s 50-day moving average. This happened after last week’s selloff found support at the 200-day moving average. Amid the fastest bounce in eight years and capping the fifth consecutive rally, the bears will need to make a stand here if they are going to prevent a retest of the January high.
Other markets weren’t as sanguine with the U.S. dollar dropping and bonds trading heavily (despite a bounce in junk issues).
In the end, the Dow Jones Industrial Average gained 1.2%, the S&P 500 gained 1.2%, the Nasdaq Composite gained 1.6%, and the Russell 2000 gained 0.9%. Treasury bonds were mixed overall, with the 10-year yield holding at 2.91%. Gold slipped, and crude oil moved higher.
Bank stocks found support, with Bank of America Corp (NYSE:BAC) adding 0.7% to close in on its prior highs, as higher long-term interest rates raise hopes for higher net interest margins and thus, higher profits.
Advancers outpaced decliners by a 2-to-1 ratio with 69 new highs vs. 48 new lows.
The rally out of last week’s lows has been technical in nature and led by big-cap tech and financial stocks. The former on pure momentum. The latter on margin hopes. As a result, the Nasdaq is up 5.6% just this week and is in the midst of its best rally since 2011.
But the move feels extended now, with the CBOE Volatility Index remaining relatively buoyant given the short-squeeze action, interest rates continuing to drift higher and the inflation threat that bothered investors so badly two weeks ago still in play.
Yesterday’s Producer Price Index report showed core inflation, less food and energy, rising at just a 2.2% annual rate. Headline measures have been rising a bit faster; however, thanks to a rebound in energy prices, a weakening dollar (boosting import prices) and ongoing tightening in the labor markets.
Another consequence of the weaker dollar is higher commodity prices, since the greenback is the most common dominator in global transactions. It’s not coincidental that as the dollar weakened in recent months, crude oil has pushed from below $50 a barrel to hit a high of more than $66 earlier this month.
Caught in the whirlwind of broad market selling in recent weeks, prices are on the mend Thursday, pushing back over the $60-a-barrel threshold. On a year-over-year basis, prices are up about 11%, with comparisons growing easier as we lap the energy price swoon seen last summer.
Watch for energy inflation to thus creep higher as we approach the peak summer driving season. And thus, for markets to suffer another bout of inflation-based selling.
Check out Serge Berger’s Trade of the Day for Feb. 16.
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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