With fourth-quarter earnings reports mostly completed and the latest Federal Reserve interest rate hike fast becoming old news, the early-January trading pattern of Nasdaq strength and blue-chip weakness has re-emerged.
Investors seeking new ideas in growth stocks pushed the Nasdaq composite index up nearly 2 percent to a record high Monday–the sixth gain in as many sessions–but the Dow Jones industrial average fell for a second day.
Long-term interest rates moved higher in the Treasury bond market, rebounding from last week’s chaotic trading. The Treasury will sell $32 billion of 5-, 10- and 30-year debt securities in a three-day auction beginning Tuesday.
Monday’s trading anomaly occurred in the gold futures market, where prices jumped nearly $10 an ounce to $326.90, a four-month high, early in the session but ended at $304.50, down $8.50 from Friday’s close. The gyrations related in part to announcements by major Canadian gold producers regarding their plans to hedge in the futures market.
The Dow Jones industrial average lost 58.01 points to 10,905.79 on New York Stock Exchange floor trading volume of 915 million shares. Among blue chips, banking stocks mostly lost ground. Losing stocks outnumbered winners by about 3-2 among NYSE-listed stocks.
The Nasdaq composite index gained 77.63, or 1.8 percent, its sixth straight advance, to a record-high close, 4321.77. The rally was the first close above 4300. Nasdaq advancers led decliners by 4-3.
Investors bought biotech shares as well as semiconductor stocks. The American Stock Exchange biotech index soared more than 7 percent to a record closing high. The semiconductor stock index at the Philadelphia Stock Exchange gained 4 percent to a record high.
The Russell 2000 index of small-company stocks added 6.87, or 1.3 percent, to 532.39.
Bond outlook: Treasury Secretary Lawrence Summers acknowledged Monday that the planned reduction of Treasury debt issuance will have a “significant impact on the financial market.”
But, no one can say what that impact will be. Last week, a scramble to buy 30-year Treasury bonds caused a brief but intense disruption on the Treasury market–a market that the world looks to for safety and liquidity.
This week, the Treasury’s $32 billion sale of notes and bonds could be unsettling, although last week’s bond market frenzy appears to have subsided.
In any event, “the status of the 30-year as the benchmark for the entire Treasury market is retreating very quickly,” said Anthony Karydakis, senior financial economist at Banc One Capital Markets.
“It is materially in the process of being replaced by the 10-year [Treasury note]. The Treasury’s own wishes seem to be going in that direction. The 30-year is becoming a less and less reliable barometer of the overall market, because it’s being viewed as driven solely by supply-related considerations.”
Investors and taxpayers generally applaud a reduction in government debt, which the curtailment of 30-year bonds represents. But the Treasury marketwill lose an important attribute if 30-year bonds become relics, Karydakis said.
The benchmark government debt security in other industrialized countries typically carries a 10-year maturity, but the U.S. for decades has offered significantly longer maturities, he said.
Since the 1980s, the 30-year bond has been a unique element of the U.S. Treasury market that has appealed to international investors, who needed a longer investment vehicle that was not available in any other market, he said.
“Right now, that doesn’t seem to be the case any more,” Karydakis said. “I think it is a bit of a loss.”
Treasury auction: Interest rates were mixed at Monday’s auction of 3- and 6-month Treasury bills. The discount rate of 3-month bills, was 5.54 percent, down from 5.56 percent a week ago. The rate on 6-month bills was 5.77 percent, up from 5.70 percent last week. The coupon equivalent rates at Monday’s auction were 5.72 percent for 3-month bills and 6.04 percent for 6-month bills.
Local news: Newell Rubbermaid, Freeport, gained $2.44, to $25.94. It declared a $500 million share repurchase plan.
