Bulls are the Winners…

U.S. equities finished solidly higher in another epic battle between the bulls and the bears, with the Dow trading in a 1,100-point range for the day. A jump in bond yields and uncertainty over inflation looks be the catalysts of the moves, despite economic and earnings fundamentals continuing to look solid. In equity news, GM and Tapestry posted upbeat results, while Micron Technology’s guidance was received positively. Treasury yields were higher and the U.S. dollar gained ground. Crude oil and gold were lower.

The Dow Jones Industrial Average (DJIA) jumped 567 points (2.3%) to 24,913, the S&P 500 Index rose 46 points (1.7%) to 2,695, and the NASDAQ Composite was 148 points (2.1%) higher at 7,115. In heavy volume, 1.4 billion shares were traded on the NYSE and 3.1 billion shares changed hands on the NASDAQ. WTI crude oil fell $0.76 to $63.39 per barrel and wholesale gasoline lost $0.04 to $1.81 per gallon. Elsewhere, the Bloomberg gold spot price tumbled $17.95 to $1,321.72 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.2% to 89.70.

The trade balance showed that the deficit came in at $53.1 billion in December, compared to the Bloomberg estimate of $52.1 billion. November’s deficit was downwardly revised to $50.4 billion. Exports were up 1.8% m/m at $203.4 billion, while imports rose by 2.5% to $256.5 billion.

The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, came in at a level of 5.81 million jobs available to be filled in December, down from the upwardly revised 5.98 million level in November. This compared to forecasts calling for a 5.81 million level. The hiring rate remained at November’s 3.7% pace, and the separation rate ticked higher to 3.6% from the prior month’s 3.5% rate.

Treasuries were lower, as the yield on the 2-year note rose 3 basis point (bp) to 2.11%, the yield on the 10-year note gained 5 bps to 2.79%, while the 30-year bond rate advanced 4 bps to 3.06%.

Treasury yields continue to climb to multi-year highs and the U.S. Dollar Index is slightly extending a rebound from a recent drop to multi-year lows, while the stock markets have overcome an early plunge following a two-day tumble. Volatility has flared up following a strong start to 2018 that came on the heels of the global rally in 2017. The jump in bond yields and signs of an uptick in inflation appear to be the catalysts for the volatility.

Schwab Center for Financial Research – Market Analysis Group

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