Tuesday, January 3, 2017
Stocks rose sharply on Tuesday, the first trading day of 2017, as stronger-than-expected data out of China and the U.S. and rising oil prices lifted investor sentiment.
The S&P 500 gained 1 percent, with energy rising more than 1.5 percent to lead advancers. The Nasdaq composite also advanced around 1 percent.
“Traders likely woke up this morning a bit surprised. Most portfolio managers likely surmised that last week’s sell-off marked the start of a modest pullback for the broader indices that would dominate the early part of 2017 as institutions normalize their risk and many investors clip profits in an effort to defer capital gains,” said Jeremy Klein, chief market strategist at FBN Securities.
The Dow Jones industrial average gained about 160 points, with Goldman Sachs contributing the most gains.
“That puts again into question the Dow reaching 20,000. I’m not suggesting we’ll get there today, but with Brent near $60 and WTI around $55, that should be a cushion for the [stock] market,” said Peter Cardillo, chief market economist at First Standard Financial. “The first couple of days of the year set the direction for the market. I don’t see anything interfering here. I think enthusiasm is still there.”
The Dow failed to break above 20,000, a key psychological level, before 2016 ended, as U.S. stocks closed the year with a three-day losing streak.
In U.S. economic news, the final read on December IHS Markit manufacturing PMI came in at 54.3, hitting a 21-month high. A number above 50 signals expansion, while a number below 50 shows contraction. The ISM manufacturing index read for December, meanwhile, came in at 54.7, above November’s read of 53.2. and construction spending hit its highest level in more than 10 years in November.
“We’re seeing the exact opposite of what happened last year, in terms of investing and sentiment,” said Adam Sarhan, CEO at 50 Park Investments. “The macro picture is improving and the stock market is forecasting better economic data and stronger earnings. That bodes well for Main Street and Wall Street.”
Overseas, China’s Caixin Manufacturing Purchasing Managers’ index (PMI) rose to 51.9, compared with 50.9 in November and beating forecasts for 50.7, on the back of increased demand. A reading above 50 represents expansion in a sector, whereas a reading below 50 represents contraction.
Chinese equities closed higher on the back of the data and of crude’s spike, with the Shanghai composite rising 1.04 percent. European equities also rose, with the Stoxx 600 Europe index advancing around 1.1 percent.
Crude prices, meanwhile, hit 18-month highs amid hopes that a deal struck between OPEC and non-OPEC countries to cut production will reduce excess supply. As of 10:31 a.m. ET, U.S. oil prices were up 2.12 percent at $54.88 per barrel.
“With prices already rushing to 18 month highs during trading on Tuesday one can see how the expectations of a production cut continues to provide a lifeline to the commodity,” Lukman Otunuga, research analyst at FXTM, said in a note. “While the current gains in oil are undeniably impressive, gains are at risk of being limited if any complications or delays arise from the proposed cut deal.”
In corporate news, President-elect Donald Trump attacked General Motors in a tweet, claiming the auto giant is making a Chevy Cruze model in Mexico and then sending them to U.S. dealers tax free. GM later responded by saying that most of its Cruze models are in fact built in the U.S.
U.S. Treasurys fell on Tuesday, with the benchmark 10-year note yields rising to 2.507 percent and the short-term two-year note yield trading at 1.25 percent. The U.S. dollar rose more than 1 percent against a basket of currencies, with the euro trading near $1.036 and the yen around 118.4.
— CNBC’s Aza Wee Sile contributed to this report.
On tap this week:
Monthly vehicle sales
2 p.m. FOMC minutes
8:15 a.m. ADP employment
8:30 a.m. Initial claims
9:45 a.m. Services PMI
10 a.m. ISM nonmanufacturing
8:30 a.m. Employment
8:30 a.m. International trade
10 a.m. Factory orders
11:15 a.m. Chicago Fed President Charles Evans
1:00 p.m. Richmond Fed President Jeffrey Lacker
3:30 p.m. Dallas Fed President Robert Kaplan
11:15 a.m. Federal Reserve Governor Jerome Powell at AEA annual meeting
11:15 a.m. Minneapolis Fed President Neel Kashkari at AEA