Stocks spun into full rotation mode as big cyclicals rose while techs and consumer names plunged amid a surge in copper prices to a decade high and rising government bond yields, notes Jon Markman of Pivotal Point.
The Dow started yesterday’s session with a 200-point freefall, but buyers quickly emerged and punched the index of industrial might to new highs before tripping at the close and finishing with a 27-point gain. No such luck for the Nasdaq 100, which fell early and often and closed with a sick 357-point loss, or -2.6%. The S&P 500 split the difference with a 0.8% loss and the small-cap 600 gained 0.6%.
The US 10-year yield hit 1.38%, its highest level since February 2020. West Texas Intermediate oil futures were up by 3.8% to $61.49. Gold, the traditional inflation hedge, rose 1.7%.
Breadth actually wasn’t too bad at 4-3 in favor of decliners and there were 706 new one-year highs vs. 45 new lows. Hitting new highs were Caterpillar (CAT), Booking Holdings (BKNG), Southern Copper (SCCO), Freeport-McMoRan (FCX), ViacomCBS (VIAC), LyondelBasell Industries (LYB), Hilton (HLT), CBRE Group (CBRE), Magna Intl (MGA), Nucor (NUE), and Intercontinental Hotels (IHG). Seems like a lot of betting on a re-opening trade in favor of commercial real estate, travel, and commodities.
Copper jumped 1.6% to $4.13 per pound, its strongest since April 2011, and heading toward its highest level since at least 2006 of about $4.50.
In other economic news, the House of Representatives is set to take up a version of the economic relief bill this week, starting the process to secure approval in Congress. Passage in March and payments by April are likely and "probably through reliance on the go-it-alone budget reconciliation route," according to a Scotiabank report.
"Commodity prices rose as investors waited for the much-awaited debate of Joe Biden's stimulus plan," a report from FXStreet said. "Democrats are rushing the proposal before the benefits announced in the previous stimulus package are set to expire. A large stimulus package, coupled with the rising hopes of another infrastructure project, will be positive for commodities like copper and crude oil."
Crude oil prices will rally "sooner and higher" this year because inventory levels will be lower than expected while higher marginal costs will curb somewhat the propensity to restart upstream activity, according to a research report from Goldman Sachs. Goldman raised guidance for Brent to reach $70 a barrel in the second quarter and $75 a barrel in the following three months. That's $10 above the investment bank's prior forecasts for both time periods.
In company news, M&T Bank (MTB) unveiled an agreement to acquire People's United Financial (PBCT) in an all-stock deal with an implied transaction value of about $7.6 billion. Shares of People's United surged 15%.
Learn more about Jon Markman at Pivotal Point.