What Next After Yesterday's Stock Market Rally - Markets This Morning

  • U.S. stocks started strong and finished strong for a 4% gain
  • Big techs led the way, with Amazon up almost $35/share
  • Worries have switched to the strong dollar and the possibility of a Federal Reserve rate hike
What Next After Yesterday's Stock Market Rally - Markets This Morning

Stocks started off brightly yesterday, then came in like champs. Much like what was anticipated, It was a stark contrast to Tuesday's market narrative, when they started off brightly then faded down the stretch to finish down on the day. Traders breathed big sighs of relief.

By the end of the day the Dow Jones was up 3.95% to 16,285, the S&P 500 was up 3.9% to 1,940.5, and the NASDAQ was up a whopping 4.24% to 4,697.5. This didn’t make traders good on the last few weeks’ of selling, but they went home very, very happy. Stocks will start Thursday at about the level where they started Monday.

Once again the big techs led the way. Apple (NASDAQ:AAPL) was up $5.95/share, or 5.74%, to finish at $109.69. Amazon (NASDAQ:AMZN) was up $34.61/share, 7.42%, to finish at $500.74. Google (NASDAQ:GOOG) was up $47.37 or 7.72% to finish at $659.74.

These were nowhere near their previous highs – Apple was over $130/share a month ago, Amazon was over $530 and Google was up near $700. But if you owned them, you walked away very happy indeed.

It wasn’t all good news. Oil inventories fell sharply, so prices rose to $38.91  for West Texas Intermediate (WTI) crude, the benchmark for U.S. oil prices. Interest rates rose, meaning bond prices fell, and the 10-year Treasury traded at 2.12%. But the dollar remained strong against other major currencies.

We Reject Asian Reality and Substitute Our Own

In rising so sharply U.S. stocks rejected the continuing reality in China, where the Shanghai Index fell 1.3%, Hong Kong’s Hang Seng was down 1.52% and India's Sensex was down 1.22%. U.S. shares also reversed the trend of Europe, where the German DAX finished down 1.39%, England’s FTSE finished down 1.69% and the French CAC-40 wound up down 1.4%.

What this means, in practical terms, is that if you’re invested in stocks outside the U.S. you not only lost money yesterday, but the money you would need to buy anything also lost value (owing to the stronger Dollar). This made the U.S. a “safe haven” for investors, better than gold, better than oil, better than just about anything.

Where Was the Pain?

There was pain in the market, mainly in deal stocks, like the Swiss seeds company Syngenta (NYSE:SYT), which was up 13.56% after Monsanto (NYSE:MON) announced it would no longer pursue its merger. (Monsanto was up 8.57%.)

Schlumberger (NYSE:SLB) was down 3.35% after agreeing to buy Cameron International (NYSE:CAM), another oil field services company, for $12.7 billion, a huge premium over the former selling price. (Cameron was up nearly 42% on the news. The reported premium was 56.3% but since it’s a stock deal, Schlumberger’s fall in price narrowed that.)

VMware (NYSE:VMW), which is considering a reverse-merger with parent EMC (NYSE:EMC), fell 3.85%.

So What Happens In The Markets Today?

The fall in U.S. equities because of the fall of China, and the fall of oil countries, was probably overdone. It is possible that heavy selling in China will cause another leg down, and it’s also possible that fears of a strong dollar, or of a September rate hike, could also bring in sellers today.

But what traders would like, even more than another great day, is a nice, quiet day where they can reflect and consider where the economy goes next. The number to look at isn't a stock or a commodity, but the VIX or Volatility Index, which remains elevated at over 30.

For your daily dose of stock market news, check our news daily - Markets This Morning.

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