The S&P 500 inched to incremental new highs on Monday as traders already were looking out to the Memorial Day holiday weekend.
The catalyst is growing hope that the Federal Reserve will delay the pace and timing and interest rate hikes this year — with expectations narrowing in on a “one-and-done” rate hike in September before pausing through the holiday season to measure the response from the economy and financial markets.
In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 gained 0.3%, the Nasdaq Composite gained 0.6%, and the Russell 2000 gained 1.1%.
Precious metals were the big winners of the day as bond-market derived inflation expectations get a lift. The iShares Silver Trust (ETF) (NYSEARCA:SLV) gained 0.8% pushing up the ProShares Ultra Silver (ETF) (NYSEARCA:AGQ) recommended to Edge subscribers to a gain of nearly 19% for the month to date.
Related mining stocks are also doing very well, with Endeavour Silver Corp (NYSE:EXK) up 4.9% since recommended to subscribers on May 13.
Biotech stocks were big with the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) up 1.3% thanks to some M&A activity. Endo Pharmaceuticals plc (NASDAQ:ENDP) reached a deal to buy Par Pharmaceutical from private equity firm TPG Capital for roughly $8 billion including debt. With Par, ENDP gains the list of top five global generic drugmakers. For TPG, it’s a payday for a company it bought in 2012 for $1.9 billion.
On the economic front, the NAHB survey of homebuilder confidence slipped lower in May, dropping to 54 from 56 in April missing expectations. The report noted consumers are being cautious and want to be on a more stable financial footing before purchasing a home. Homebuilder stocks moved higher, however, on an increase in the component measuring future sales expectations. The iShares U.S. Home Construction (NYSEARCA:ITB) gained 0.9% in response.
The big news of the day surrounded Apple Inc. (NASDAQ:AAPL) as activist investor Carl Icahn once again penned a letter to CEO Tim Cook urging a larger share buyback and lending support to new product efforts in televisions and autos. Highlighting a forecast of earnings growth of 40% this year, Icahn suggested shares are worth $240 today — making buybacks an attractive use of company cash.
Icahn has pressured Cook before into raising its buybacks and AAPL already boosted its capital return program in its last earnings release. Given that the bulk of the company’s cash is held offshore and would thus be subject to U.S. taxes if repatriated, it’ll be interesting to see how management responds.
On Tuesday, we’ll get another housing data point when the housing starts report is released. States dipped in February and March on the excuse of heavy weather; something that wasn’t in play in April. Both starts and new permits are expected to post big gains.
Technically, the lack of market breadth is disconcerting. As the chart above shows, while the S&P 500 is popping out of a tight trading range going back to February the percentage of components in uptrends is stalled near 63% compared to highs near 75% in recent months.
While nothing its stopping stocks from moving higher anyway, the current move is happening on an awfully narrow base of support — suggesting the bulls don’t find many issues attractive at these levels.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
