It was anticipated that North Korea would set off another missile to celebrate their founding anniversary on Saturday. It turned out to be a false alarm. Relieved…the various stock index futures contracts opened higher and equities caught the wind as the market opened. The upside continued all day for the major indices’ highest gain in six months. Today, the DOW advanced 259 points, the S&P 500 gained 26, and the NASDAQ shot up 77.
These outsized gains were a function of the second positive input, namely that the damages from Hurricane Irma were overestimated. The costs were initially projected to be as high as $200 billion and are currently estimated to be $50 billion. As a result, the insurance companies, which made those strange late gains on Friday, continued higher today. TRV certainly helped the proceedings with a 2.3% rise. In addition, the financials did well on the interest rates moving up. The 10-year Treasury Note is now at 2.12% after having been as low as 2.01% last week.
The reason for the advance in fixed income is that today is what they call a “risk-on” day. All of the supposed “safe-havens” such as bonds did poorly as investors wanted to be in the stock market, at least for today. The dollar also did better against the various currencies after having had an awful time of it so far in 2017. The Euro was down to 1.193 and the Japanese yen fell to 109. In addition, gold underwent its worst one-day decline in two months closing at 1,331 an ounce…down 1.4% on the day. Crude oil was up to $48 a barrel.
Breadth numbers today were strong at a 4 to 1 upside ratio. The VIX took a beating, as it should on a day like this, by declining 11% to 10.73. This means that another day or two of higher equity prices should bring the VIX under 10 and put up a sign that stocks are becoming overbought once again.
Donald M. Selkin
Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: Bloomberg Financial, Reuters, and the Associated Press. These are excerpts from Don Selkin’s Daily Market Notes, abbreviated and updated with permission from the author.