U.S. stocks finished mixed on Tuesday as relief over the reopening of the government has given way to new apprehension about looming budget and immigration talks. The debt ceiling looming large in late February has added fuel to the mix-up and increased the stakes.
Moreover, the ongoing rollout of the Q4 earnings season and the approach of another Federal Reserve police meeting has given some investors pause at a time of extreme sentiment and positioning.
In the end, the Dow Jones Industrial Average lost a fraction, the S&P 500 gained 0.2%, the Nasdaq Composite gained 0.7% and the Russell 2000 gained 0.4%. Treasury bonds strengthened, the dollar weakened and both gold and crude oil moved higher. Breadth was positive, with advancers outpacing decliners by a ratio of 1.6-to-1 with 291 new highs on the NYSE vs. 27 new lows.
General Electric Company (NYSE:GE) was again the most actively traded issue, rising 4.2% amid a value bid after shares had been hammered in recent weeks on disappointment with its corporate turnaround plans. Twitter Inc (NYSE:TWTR) fell 2.2%.
At the industry level, coal miners led the way with a 6.3% gain with oil equipment names having another strong session, up 3.5%. Household goods and pharmaceuticals were the laggards with Procter & Gamble Co (NYSE:PG) and Johnson & Johnson (NYSE:JNJ) suffering declines of 3.1% and 4.3% respectively despite beating quarterly estimates.
Amazon.com, Inc. (NASDAQ:AMZN) surged another 2.7% amid ongoing buzz for its Amazon GO automated store in Seattle.
Conclusion
The breakdown in the dollar is notable in the context of the two big stories right now: President Trump’s increasingly aggressive trade stance (with the recent decision to slap tariffs on solar panels and washing machines from Asia) and the breakdown of whatever shred of bi-partisan goodwill he had with Senate Democrats.
The move takes the PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP) back down to levels not seen since 2014 — ending a three-year consolidation range.
Normally, currencies and equities move their own way. But the dollar’s weakness will be a headwind for stocks since it will fuel both higher interest rates (since Treasury bonds look less desirable to foreign buyers now) and higher inflation (since a weaker dollar bolsters crude oil and other commodity prices).
Both of these will be a negative for a market deeply addicted to both cheap debt and a dovish Federal Reserve.
Yet for now, investors are focusing on the positives by piling into oilfield services stocks in the anticipation that the rise in energy prices will persist. Just look at the chart of Halliburton Company (NYSE:HAL), which is enjoying a vertical rise.
Check out Serge Berger’s Trade of the Day for Jan. 24.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
