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After The Close - U.S. stocks were up big on Wednesday, as the bulls continued to dominate trading following yesterday’s late-afternoon rally. As we reported in our midday update, today’s buying was broad-based, and was driven by strength in the mid- and small-cap equity categories. The upward ascent was more or less uninterrupted, save for a brief mid-morning correction, with advancing stocks outnumbering the decliners by a 5.5-to-1 margin at day’s end.

 The tech-focused NASDAQ looks poised to make another run at 5,500, over a week after fading away from that threshold, while the Dow Jones Industrials traded within 45 points of its own 20,000 benchmark at one point during the day. The latter development has been the headlining story since the Fed upped its interest-rate policy in December (more below). While notable mostly for its round and aesthetically pleasing total, the figure represents a psychological hurdle that, according to the bullish case, would serve as a new breakeven level for the market to build upon.

The mid-afternoon spike in buying occurred as investors digested the transcript of the Federal Reserve’s December meeting. While the minutes illustrated some concern about the economy strengthening, traders were ostensibly reassured that the gradual rate hikes planned for 2017, as well as the overarching economic outlook of the central bank, remains intact. For one, Fed members unanimously approved last month’s move to increase interest rates, signifying that the tightening of the monetary policy will continue throughout the year.

Each of the market’s ten major sectors traded higher today, led by consumer cyclicals and financials. The former’s climb was boosted by favorable car sale data released this morning, with most major producers reporting sales beats for the month of December. In fact, U.S. auto sales set a new full-year record in 2016, at roughly 17,465,000 vehicles. Accordingly, shares of Ford (F) and General Motors (GM) rose in the mid-single-digit range. This is in addition to yesterday’s rosy manufacturing survey data from the Institute for Supply Management, which indicated that recent optimism among manufacturers is higher than it has been in over two years. Tomorrow’s unemployment claims issuance from Automatic Data Processing (ADP) and Friday's jobs report will offer further clarity to investors hoping to reassess the strength of the economy as the year begins.

Meanwhile, domestic oil prices got a boost from a widespread expectation that stockpiles will decrease. The OPEC-mandated production limit went into effect this week, and aims to stabilize the global energy market by reducing a worldwide supply glut. Time will tell if the world’s varied and diverse drillers will adhere for the duration of the agreement, but U.S. crude oil’s $0.93 per-barrel gain (1.8%) suggests that the analysts expect inventories to drop.

So, with half of the holiday-shortened trading week now over, will the market be able to push past Dow 20,000? Today’s late rally brought the index’s closing tally to 19,942, the second-highest end-of-day value in its history. With the bulls apparently back from their late-December lull, that number is now well within striking distance. – Robert Harrington

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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11:40 AM EST - The late buying surge on Wall Street yesterday has spilled over into today’s session, as investors continue to add to their equity positions with heavy trading volume. It appears that the post-election rally, which hit a bit of a lull in the final week of 2016, has resumed.

The buying is broadbased, with winning issues outpacing losers by a notable margin on both the New York Stock Exchange and the NASDAQ. In addition to the large-cap market, we are seeing heavy buying in the mid- and small-cap sectors. Investors are once again emboldened by the possibilities of what the incoming pro-business Trump Administration, which promises tax cuts and roll backs in regulations, will have on both Corporate America and Wall Street. A continuation of positive economic news, which included a good report on manufacturing activity for the month of December yesterday, is also driving the U.S. and international equity markets higher.

Speaking of the business beat, which will bring some important reports on nonmanufacturing activity and the labor market later this week, we got some data on the auto sales this morning, most of which was encouraging. It is another sign that the U.S. economy is strengthening. Shares of most of the major automakers are up this morning on the sales data.

From a sector perspective, all of the major equity groups are in positive territory, with the energy sector the last to join the festivities. The recent strength of the U.S. dollar has weighed some on the energy commodities. Too, crude oil and gas prices dropped about 2% yesterday on the expectation of a build in supplies last week (the report comes tomorrow morning, pushed back a day because of the holiday). The leadership is coming from the consumer discretionary and industrial sectors. The consumer cyclical names are getting a boost from the aforementioned auto stocks, while the industrial sectors are up again on yesterday’s encouraging report on manufacturing activity. The higher-yielding categories, including the utilities and telecommunications groups, also are up, as yields on fixed-income securities have retreated a bit this morning.

Looking ahead to the remainder of today’s session, the market peripherals are clearly suggesting that the bulls will continue to make a good case for another winning session on Wall Street. As noted, the market breadth on NYSE and NASDAQ is in favor of the bulls, while the mid- and small-cap stocks, which tend to lead the market in one direction, are holding the biggest gains on the day, with the small-cap Russell 2000 around 1% higher in late-morning trading. Meantime, investors may want to keep close tabs on the healthcare sector, as there are a lot of meetings being held on Capitol Hill today about healthcare reforms. President Obama is meeting with Senate Democrats to discuss ways to keep major parts of the Affordable Care Act in place, while Vice President-elect Mike Pence and Speaker of the House of Representatives Paul Ryan during a morning press conference reiterated their intention to repeal President Obama’s signature legislation. Stay tuned. - William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
 

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Before The Bell - Wall Street started out the new year as though it would be smooth sailing to Dow 20,000. That is because after the first half hour, or so, of equity trading yesterday morning that 30-stock composite was ahead by 177 points. Higher oil prices, some enthusiastic buying to start the new year, and optimism about the economy all combined to quickly deflate any seeming hopes by the bears to grab the reins after a dispiriting performance by the leading averages last week. But the bulls fast start did not last.

On point, following that quick start, which, as noted, saw the Dow Jones Industrial Average spike up by about 175 points, bringing that index to within some 60 points of that coveted 20,000 level, the sellers entered the fray. In fact, had it not been for a very strong issuance from the Institute for Supply Management, which showed a solid 54.7 reading on manufacturing activity for the month of December, the stock market might have begun backtracking sooner. Still, armed with that strong report, the bulls held the sellers at bay a while longer, enabling the averages to end the morning moderately higher. 

However, that upbeat economic issuance aside, a pullback in oil and some profit taking proved too much for the bears to tolerate, and as the afternoon began, the buying eased off mightily. As to oil, the morning's rise brought crude prices to an 18-month high amid hopes that a deal earlier struck between OPEC and non-OPEC countries to pare back production would reduce excess energy supplies. At the day's high, oil was ahead by better than 2%. By early afternoon, though, the initial gains were gone and then some, with oil then off by almost 2%.           

The early U.S. market gains also were helped by a solid close for China's equity market on the back of strong domestic data. That healthy showing by the world's second largest economy and the better numbers in the oil patch were a solid one-two punch to begin the new year. Meanwhile, in addition to the solid ISM data, another report issued yesterday affirmed that construction outlays had hit their highest level in more than a decade during November. Clearly, things have started out differently than they did last year for the economy, when tumbling oil prices led to a weak stock market and poor first-half economy on our shores.

Meanwhile, Wall Street sought to keep the rally alive into the afternoon, and did manage to realize success in that endeavor, as the leading averages all stayed in the plus column as we proceeded through the second half of the session. In all, the Dow's gain held in the 25- to 50-point range until we moved inside the final hour when buying resumed sending the averages notably higher again. As before, the advance-decline ratio was strongly positive at better than two-to-one on the Big Board, while the telecom and basic materials groups led the charge on a sector-wide basis. 

The market then furthered its gains, even though oil prices continued to press lower on strength in the dollar. The day-long rally then strengthened during that final stretch, so as we neared the closing bell, a bullish start to 2017 was secured. It is important to look at the direction of trading early in the year as this initial move can often set the direction for the first month and beyond. Of course, one day is a very small sample, and we will need to at least see the overall performance through the first handful of session before any conclusions can be drawn.    

Be that as it may, the stock market managed to end matters nicely to the upside with that late buying burst. In all, the Dow closed out the session with an advance of 119 points; the S&P held onto a 19-point gain; while the NASDAQ was better by 46 points. Breaking the day down, we see that only the utilities among the 10 core sectors ended the day lower, with leadership provided by the basic materials, telecom, and energy groups. As to the final advance-decline ratio, it favored the bulls by some two-and-a half to one, a better performance than earlier in the day. All in all, it was a compelling way to start the new year.      

Looking ahead now to the second session of the new year, and casting our gaze abroad, we see that stocks were higher across Asia overnight, while they are now gaining in Europe so far this morning, as are oil and interest rates. Our futures, too, are gaining, with the Dow suggesting a 40-point opening rise, while the S&P 500 and NASDAQ futures are now up by five and 10 points, respectively. So, we could well have an encore today, as Wall Street awaits further major economic reports later in the week, including surveys on non-manufacturing and employment.   - Harvey S. Katz 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.