Bucking conventional wisdom, as it is wont to do, the stock market did not begin this week with a continuation of the declines of the previous two. Rather, stock proxies opened Monday's session with strong gains and built on them as the day progressed, ending at intraday heights.
Dow Jones Industrial Average
rose 2.3% to 8627.40, the
gained 2.4% to 910.40, and the
jumped 2.8% to 1400.30
Notably, the S&P 500 rallied after briefly breaching its 50-day moving average of around 890 on Friday. This was particularly significant for those who've been
following the similarities between the post-Oct. 9 rally and the advance in 2001's fourth quarter. "Last year the S&P's decline stopped right at its 50-day moving average on Dec. 14, before rallying about 4.4% into the first week of January," observed
contributor Charles Norton. "Friday, Dec. 13, the
index found support at its 50-day moving average and has rallied, thus far."
The market's advance was impressive but was marred by the absence of strong volume. Just under 1.2 billion shares were exchanged on the
, where gainers led decliners 22 to 9. Similarly, a hair under 1.2 billion shares traded in Nasdaq activity, where gainers led 11 to 6.
Additionally, the stock market advanced despite another surge in crude prices, which will ultimately hamper the global economy. The price of crude rose 5.8% to $30.10 per barrel, its highest level since Oct. 2, amid ongoing and intensifying unrest in Venezuela. Meanwhile, gold continued its recent ascent, rising 1.1% to $337.60 per ounce.
Most participants believe the stock market will struggle to make much headway if either gold or oil is rising sharply, much less both. That was the gist of a post Monday by
Jim Cramer, who mused: "If this is how the
stock market reacts when gold and oil are going nuts to the upside, what will happen if they actually start going down?!?"
Cramer also speculated about the potential for a "crash in gold" if the dollar were to strengthen, and that prompted my reply in the
Columnist Conversation that I'd like to revive here.
A Bull Market by Any Other Name
Gold has been in a pretty steady uptrend for almost two years now and in fact has outperformed the S&P 500 going back as far as five years (stocks have performed far better for longer periods). Yet, a lot of learned folks continue to "dis and dismiss" gold's run, which I find somewhat perplexing.
Rather than the notion that a rebound in the dollar could spur a "crash" in gold, some believe gold's advance portends a "crash" in the dollar, which would be pretty damaging to the stock and Treasury bond markets. The U.S. Dollar Index rose 0.09 to 104.07 Monday but closed well off its intraday best of 104.23, even as shares kept surging. Meanwhile, the price of the benchmark 10-year Treasury fell 20/32 to 98 26/32, its yield rising to 4.15%.
Prior to Monday, the Treasury market has largely been inured to recent weakness in the dollar and strength in gold. I don't want to make too much of any one trading day, but this session was the first in which Treasuries responded as one would expect to a potentially inflationary surge in oil, and various factors undermining the greenback and aiding gold's most recent advance.
To be sure, hardcore bears have been talking about a "crash" in the dollar/stocks/Treasuries and a huge rally in gold literally for years. To date, they've been (mainly) wrong. Still, it seems to me that the
fundamental backdrop is more supportive of a longer-term
of gold's strength and the dollar's weakness, rather than a reversal of those trends.
A few months back, I bought shares in the
Tocqueville Gold fund, and my only regret is not putting my money where my mouth is even sooner. I'm also still long the
Rydex Tempest 500 fund as a long-term hedge against weakness in U.S. equities.
Still, a short-term setback for gold and strength for the dollar seem likely, purely on the basis of technical conditions, one reason why I still think the next few weeks are likely to be favorable for equities, with Monday perhaps being the onset of such a move.
Other Notes and Notables
Factors aiding the advance included strong overnight gains by European bourses as well as positive comments about U.S. stocks by Ian Scott, head of European equity strategy at Lehman Brothers, and Peter Oppenheimer, European equity strategist at Goldman Sachs. Also, Merrill Lynch added
to its Focus One list.
H-P rose 2.4%, but its positive impact on the Dow was far outstripped by gains for its fellow tech components,
. In the absence of any major news on fundamentals, big-cap tech names rallied strongly; the Nasdaq 100 rose 3.6%, the Merrill Lynch High-Tech 100 gained 3.5%, and the Philadelphia Stock Exchange Semiconductor Index rallied 5.3%.
The New York transit workers calling off (or at least postponing) the strike originally planned for midnight Monday may have also helped buoy spirits on Wall Street. Major equity exchanges are based in Manhattan, and concerns about a potential strike may have weighed more heavily on sentiment late last week than was generally acknowledged (here included).
Finally, there was some talk about the market reacting positively to news that Al Gore is not going to run for president in 2004. "Gore's move raises the chances that President Bush will have an easier route in winning a second term in two years. A positive for the markets," commented
Perhaps other traders were thinking along the same lines. Still, I'm hard-pressed to envision Gore defeating President Bush when he couldn't best
Bush in the Electoral College, as I posted on
Columnist Conversation. (It's been raining like crazy for days now, and I'm feeling a little feisty.)
Gore stepping down raises the possibility (however remote) that "someone else" will emerge to lead the Democrats out of the wilderness. Who at this point in 1990-91 envisioned little-known Arkansas Gov. Bill Clinton besting Papa Bush in 1992?
If Gore stepping aside helped the market, which I doubt, maybe it's because some folks are thinking this could lead to Bush being defeated. Yes, Bush "inherited" a lot of bad economic tidings, as well as 9/11, but stocks haven't fared so well thus far during his presidency, especially compared with the eight years of Clinton/Gore.
That last point sparked tremendous feedback from readers, as mixing politics with the religion of money always makes a combustible cocktail. There is no time to delve into the subject, but perhaps we will in a future column.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.