Rally continues into Monday, but stocks close off highs

Friday’s big U.S. rally carried over into Monday before stocks started to give back some of their gains in the last two hours of trading.

The S&P 500, which had been up as much as 0.7% in the morning, lost some steam the rest of the day, ending with a 0.3% rise. Likewise, the Dow Jones Industrial Average, up 0.4% earlier in the day, closed with a modest 0.1% gain. But the tech and small-cap gauges did a better job of holding their gains. NASDAQ, up 1% earlier in the day, finished up 0.7%, while the Russell 2000, up as much as 1.5%, settled for a 0.9% rise.

While Monday’s rally did lose a little energy as the day progressed, stocks were up broadly. Three stocks were up for every one that declined. Seven of the 10 S&P sectors closed in the green, led by consumer staples (+0.8%) and technology (+0.6%). Utilities were the biggest losers, falling 0.4%. Among the 30 Dow stocks, 15 stocks were up and 12 down, with three unchanged. But among the NASDAQ 100 there was a much bigger discrepancy between winners and losers, with 78 issues up, 21 down and one unchanged. Bonds were largely unchanged.

The impetus for the rally continued to be an easing in international tensions, or at least the perception that they are. Russia reportedly ended military air exercises near Ukraine, even as Ukraine said it was close to cutting off a separatist-held stronghold. In the Middle East, the U.S. appeared to be taking a firmer stance to end the chaos in Iraq, including air strikes, while Israel and Hamas were said to be working on a ceasefire in Gaza.

Friday’s U.S. rally helped boost stocks in Asia and Europe sharply across the board. Monday’s rally began in Asia, where the Asia Dow jumped 1.3%. The big gainer was Japan’s Nikkei 225, which rebounded 2.4% after losing 3% on Friday. In China, both the Hong Kong-based Hang Seng index and the Shanghai composite rose about 1.3% each. India’s Sensex rose 0.8% while the Korean KOSPI index rose about half that.

The Stoxx Europe 600, which dropped more than 2% in the last three days of last week, gained more than half of that back on Monday, rising 1.3%. Germany’s DAX index jumped 1.9%, nearly recouping all of its losses in the previous three sessions. French and Italian stocks both climbed well over 1% while Spanish stocks rose 0.9%. Russia’s MICEX index rose 2.1%. German government bund prices pulled back a little, with the yield on the 10-year security rising one basis point to 1.06% but still near a record low. Spanish and Italian government bond prices were slightly higher, lowering yields by 2-3 bps.

Reports/dates/facts/links worth paying attention to over the next week:

  1. August 12: U.S. Treasury monthly budget report (July).
  2. August 13: Retail sales (July); 10-year Treasury note auction.
  3. August 14: Weekly unemployment claims; 30-year Treasury bond auction.
  4. August 15: Industrial production (July); producer price index (July); University of Michigan consumer sentiment index (August); New York Fed Empire State manufacturing survey (August).
  5. The Atlanta Fed’s new GDP forecasting model: GDPNow

Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.


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