Stocks Rise, Volatility Drops as Wall Street Marks First Session of 2018

Wall Street marked a robust start to 2018, as the major indexes returned to record territory after a brief holiday lull.

Stocks Hit New Highs

The large-cap S&P 500 and Nasdaq each rose to record highs in the first session back from holiday. The S&P 500 added 0.8% to close at 2,695.79, with seven of 11 sectors contributing to the gains.

Energy stocks posted the biggest advance, rising 1.8% as a sector. The consumer discretionary and materials components each added 1.5%. Information technology rose 1.4%, while healthcare added 1.2%.

Gains in these sectors offset sharp declines in utilities and consumer staples, which fell 0.9% and 0.6%, respectively.

The technology-heavy Nasdaq Composite Index crossed 7,000 for the first time, climbing 1.5% to 7,006.90.

The Dow Jones Industrial Average added 104.79 points, or 0.4%, to close at 24,824.01. That was roughly 13 points shy of an all-time high.

A measure of implied volatility known as the CBOE VIX nosedived on Tuesday, reaching its lowest level since Dec. 21 and signaling continud momentum for equities.

Volatility crept up slightly at the end of the year, but has failed to put up meaningful gains. The so-called “fear index” normally tracks in the opposite direction of the S&P 500.

Trump Reflation Trade Gives Rise to Broader Gains

Wall Street’s performance on Tuesday defied some analysts’ expectations of a broad slowdown at the start of the year. Whereas the Trump factor drove U.S. stocks for much of 2017, the bulls expect a robust global recovery to push the market forward in the next 12 months. Strong corporate earnings are also expected to underpin this growth.

That being said, several firms have warned of valuation risks, with Vanguard Group pricing in much slower growth for 2018. Back in November, the asset manager said the U.S. equity market faces a greater risk of correction in 2018. It also predicted that the major indexes would yield an average of 4% to 6% for the year, a fraction of their 2017 returns.

President Trump can still play an important role in the market this year. After signing tax reform into law, the president now has his sights set on infrastructure spending and deregulation.

Dollar’s Decline Continues

The U.S. dollar declined again to start the year, as investors continued to buy the euro and pound on rumors that other central banks will begin normalizing monetary policy. The U.S. dollar index (DXY) fell 0.4% to 91.85, its lowest in three months.

Gains in the U.S. currency failed to materialize in 2017 even as the Federal Reserve raised interest rates on three occasions. The greenback is coming off its worst year since 2003 where it declined more than 10%. Analysts expect the global reflation trade to continue undermining the U.S. currency for the foreseeable future as investors seek exposure to Chinese and European markets.

As the dollar loses its luster, commodities have been rising, with gold continuing its bullish rally. The yellow metal’s February futures contract was up by another $10.30 on Tuesday to hit a three-month high of $1,319.60 a troy ounce. Meanwhile, silver tacked on 9 cents to reach $17.23 a troy ounce.

Oil prices failed to rally on Tuesday, but continued to hover near multi-year highs, with U.S. futures trading well north of $60 a barrel.

Featured image courtesy of Shutterstock. 

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi