U.S. equity markets continued their September surge in Monday trading, as all of the major indexes climbed higher throughout the day. The tech-heavy Nasdaq was the biggest winner, gaining 1.7% on the day, and was followed closely by the broad S&P 500, which surged by 1.5%. The Dow which jumped higher by 1.4%. This boost in optimism helped to reverse oil’s recent plunge and send the commodity up by 1.3% on the day. Thanks to this confidence, the precious metals market was mixed with gold gaining just three dollars an ounce while silver lost five cents an ounce to start the week.
Today’s large gains were fueled by broad strength in the financial and basic materials sector, which saw the major banks jump higher by more than 2.5% and the integrated oil companies post similar gains on rising crude prices. Increased optimism came as traders speculated that the Fed would announce further easing measures at tomorrow’s policy meeting. Many are looking for the bank to increase its purchases of mortgage-backed securities or to increase its buying of long-term government bonds in an attempt to keep a lid on rates. “The Fed will hint at it, put it on the table, but not do anything,” said Brian Gendreau, a market strategist at Financial Network Investment Corp.
One of the biggest winners on the day was the iShares Russell 2000 Index Fund (IWM), which jumped higher by 2.8%. This sharp spike came as traders embraced riskier assets such as small caps and a wave of speculation that many large companies would put their vast cash reserves to work by buying up smaller firms. A great example of this was the recent announcement by International Business Machines (IBM) to buy data storage and analysis firm Netezza Corp. “Larger companies are finding it harder to grow so when they see an interesting technology, they’re willing to pay up for it,” said Keith Bachman, an analyst at BMO Capital Markets. Should this trend continue it could help to boost the fortunes of the lagging small cap market [see holdings of IWM here].
One of the biggest losers was the United States Natural Gas Fund (UNG), which slumped by 4% in today’s session. These losses came thanks to easing worries over the Atlantic hurricane season, which has not been nearly as bad as many had feared. With Hurricane Karl falling apart over southern Mexico and Igor passing Bermuda, it appears as if the natural gas fields in the Gulf of Mexico will be safe for at least the next week from any possible weather-related disruptions. “This hurricane season hasn’t quite lived up to expectations so there is probably some deflation of some of those fear premiums,” said Cameron Horwitz, an analyst in Houston at Canaccord Genuity. Cooling demand “is falling off and you are transitioning toward heating demand but you are not quite there” [see more charts of UNG here].
Disclosure: Eric is long IWM.