In a repeat of a dynamic that dominated trading early last year, investors piled into stocks Thursday as Russia signed up for another cease-fire deal in Ukraine while negotiations between Greece and the European establishment suddenly became less acrimonious. While no deal has been announced, the bureaucrats have been making noises about agreeing to the outlines of an agreement which, I guess, is progress.
A poor retail sales report (calling into question the boost to consumers from lower gas prices) and a no-more-money-printing warning from the Bank of Japan were simply ignored.
In the end, the Dow Jones Industrial Average gained 0.6% to move near the 18,000 level, the S&P 500 gained 1%, the Nasdaq gained 1.2%, and the Russell 2000 gained 1.2%.
Still, for perspective, it’s important to remember that based on the broader NYSE Composite Index, we remain within the confines of a big, multimonth trading range.
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Technology, energy and materials stocks led the way higher with steelmakers on the move. Notable breakouts included AK Steel Holding Corporation (NYSE:AKS), up 4.6%, and ArcelorMittal SA (ADR) (NYSE:MT) up 5.2%. Apple Inc. (NASDAQ:AAPL) just can’t be stopped in the wake of its Swiss franc denominated bond issuance, rising another 1.2% and up more than 20% from its January low. Solid earnings boosted Cisco Systems, Inc. (NASDAQ:CSCO) by 9.4%.
Financial stocks weren’t slouching around either, with Citigroup Inc (NYSE:C) rising 2.4% to cross over its 200-day moving average.
Crude oil enjoyed a positive session, rising 5% to close at $ 51.28 a barrel. The fact that crude has been spending time above the $ 50-a-barrel threshold has played a big role in lifting stocks since late January. But analysts continue to warn that until we see meaningful production cuts (not just drops in drilling rig counts) as well as inventory reductions, prices are likely to slide lower again.
The picture below, from RBS analyst Alberto Gallo, pretty much sums up the reason why stocks have been ebullient this week: Suddenly, a painful and expensive “Grexit” looks less and less likely. That’s a good thing, especially for bank stocks.
But this ignores broader issues, such as the political reality that any easing of bailout terms will immediately cause populist parties on the rise in places like Italy and Spain to demand a relaxation of budget austerity measures amid still-high unemployment and stagnant growth.
And being cordial and coming to agreement are two different things. Indeed, after the close, eurogroup head Jeroen Dijsselbloem warned “Don’t get your hopes up yet” on Greece. The German press has also been highlighting the cost of a Grexit to German taxpayers.
Tensions remain high as people compare the confidence expressed by German business unions that the eurozone could withstand a Greek exit from the common currency as the same dangerous obsession with moral hazard that led to the collapse of Lehman Brothers. Greece’s finance minister Yanis Vardoulakis, pictured in both the pictures above, has warned that the euro is fragile: “It is like a house of cards. If you pull away the Greek card, they all come down.”
It won’t take much of a negative surprise in this process to push stocks back away from overhead resistance that’s contained the NYSE Composite since July. Especially with market breadth still quite tepid — revealing that beneath the surface, buying interest is less than enthusiastic.
Well, outside Apple at least.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
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