Tuesday Turn-Around Again: Stocks Recover; Post Third-Consecutive Up Day

After opening moderately lower, all the major indices posted solid gains, and nine of the 11 S&P 500 (SPX) sectors rose. Financials, consumer discretionary, and real estate topped the leader board.

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(Tuesday Market Close) Well how about that? Finally the market had a day without triple-digit gains or losses. Major stock indices closed slightly higher Tuesday, recovering from a rough start to post a third-straight daily win.

What a turn-around! After opening moderately lower, all the major indices posted solid gains, and nine of the 11 S&P 500 (SPX) sectors rose. Financials, consumer discretionary, and real estate topped the leader board, while energy and materials were the only sectors finishing in the red. The tech-heavy Nasdaq outpaced the other indices. Benchmark 10-year Treasury yields drew back slightly, but volatility remains elevated with the VIX hanging around near 25 (see figure 1 below).

Though we’re likely not out of the woods yet, it appears many people are seeing opportunity here and saying maybe some of the sell-off was overblown.

Many eyes now seem focused on tomorrow morning’s consumer price index (CPI) data for January, but it’s important to keep this in perspective. One data point doesn’t mean that much in the long run, and some of the lead-up to this report appears a little over-hyped. Wall Street analysts estimate that CPI rose 0.4% in January, and core CPI (which strips out food and energy) rose 0.2%, according to Briefing.com

The annual CPI number might draw more attention than the monthly change, however, because many investors seem skittish about inflation now following the 2.9% rise in average wages during the year ended in January. In December, CPI rose 2.1% year-over-year, with core CPI up 1.8%. Those looked like relatively vanilla numbers when they came out, so we’ll see tomorrow if January brought any change.

The interest rate complex has seemed very sensitive to inflation fears lately, to say the least. However, benchmark 10-year Treasury yields slipped slightly Tuesday to around 2.83%, even as two-year yields rose a bit in a slight narrowing of the yield curve. There wasn’t any re-test Tuesday of the highs posted Monday above 2.9%, which marked four-year peaks. It looks like people might have been seeking some protection in the interest rate complex late in the day ahead of tomorrow’s inflation data.

Inflation isn’t the only major report coming out tomorrow. January retail sales also bow at 8:30 a.m. ET. The consensus among Wall Street analysts is for a 0.2% rise, but 0.4% not including auto sales. It’s worth keeping an eye on retail sales going forward to see if this little hitch in the stock market might cause some people to tighten their pocketbooks, which sometimes happens when there’s a sell-off.

Crude oil is sputtering a bit, closing down slightly and staying just above $59 a barrel. That was interesting, considering the dollar weakened. Crude often climbs when there’s a weaker dollar.

On the earnings front, tomorrow morning looks relatively quiet when it comes to big hitters, but Cisco (CSCO) is due after the close Wednesday.

In other corporate news, AmerisourceBergen (ABC) jumped more than 9% Tuesday following a Wall Street Journal report that Walgreens Boot Alliance (WBA) has reached out to the drug distributor about a potential takeover. This is an interesting one to watch, because if it comes to fruition it would continue to show that when there’s a chance to add vertical lines to business, companies often want to do it.

VIX 2-13-18 Back to Earth?

FIGURE 1: THE VIX RETURNING TOWARD NORMAL?

As equity markets begin to settle down, so does the volatility measure. However, the “fear index” is still quite a bit above the range in which it traded over most of the last year. Data Source: Cboe Global Markets. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Good Trading,
JJ
@TDAJJKinahan

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