Record Highs Don’t Come in Summers Rally

Stocks around the world rallied on Larry Summers’s shocking move to remove himself from consideration to lead the Federal Reserve.

Although the Dow Jones Industrial Average and the S&P 500 soared higher, bears were having a feast on Apple pie as Apple (NASDAQ:AAPL) shares sank 3.18 percent, helping to drag down the Nasdaq 100 Index.

Apple’s stock constitutes 11.55 percent of the weight of the Nasdaq 100, which was the only major index to finish Monday’s session in the red. Apple was not alone on the Nasdaq in finishing the day with a loss. Other heavily-weighted Nasdaq 100 stocks which posted red numbers were #3 Google (NASDAQ:GOOG), #4 Amazon (NASDAQ:AMZN), and #20 Facebook (NASDAQ:FB) — which did a 4.06 percent faceplant.

The S&P 500 soared to a session high of 1,704.95 — within spitting distance of its all-time record high of 1,709.67. The Dow Jones Industrial Average (NYSEARCA:DIA) gained 118 points to finish Monday’s trading session at 15,494 for a 0.77 percent advance. The S&P 500 (NYSEARCA:SPY) climbed 0.57 percent to close at 1,697. The Nasdaq 100 (NASDAQ:QQQ) declined 0.30 percent to finish at 3,168. The Russell 2000 (NYSEARCA:IWM) advanced 0.21 percent to end the day at 1,056.

In other major markets, oil (NYSEARCA:USO) sank 1.90 percent to close at $38.11. On London’s ICE Futures Europe Exchange, November futures for Brent crude oil fell $1.98 (1.77 percent) to $109.72/bbl. (NYSEARCA:BNO). December gold futures advanced by 70 cents (0.05 percent) to $1,309.30 per ounce (NYSEARCA:GLD). Transports were flying higher than the Bombardier CS100 on Monday, as the Dow Jones Transportation Average (NYSEARCA:IYT) soared by exactly one percent.

In Japan, the Tokyo Stock Exchange was closed due to Typhoon Man-Yi (NYSEARCA:EWJ). Meanwhile, Tokyo Electric Power was up to its old tricks, pumping away rainwater that was pooling around its leaky storage tanks and redirecting the water – you guessed it – into the Pacific Ocean. The yen strengthened to 99.03 per dollar on Monday. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (NYSEARCA:FXY).

In mainland China, a modest decline was led by the financial sector after People’s Bank of China governor Zhou Xiaochuan wrote in an article which appeared on the official People’s Daily website, discussing needed measures to strengthen the financial system. The Shanghai Composite Index declined 0.22 percent to 2,231 (NYSEARCA:FXI). On the other hand, the “end of Summers relief rally” sent Hong Kong’s Hang Seng Index jumping 1.47 percent to end the session at 23,252 (NYSEARCA:EWH). The Shanghai Stock Exchange will be closed on Thursday and Friday for the Mid-Autumn Festival and the Hong Kong Stock Exchange will be closed on Friday.

In Europe, 16 of the 18 major stock indices advanced on reports of the Summers withdrawal as well as the agreement between the United States and Russia on a plan for destroying Syrian chemical weapons (NYSEARVA:VGK). The Euro STOXX 50 Index finished Monday’s session with a 0.96 percent jump to 2,894 – rising further above its 50-day moving average of 2,775. Its Relative Strength Index is 66.91 (NYSEARCA:FEZ). Technical indicators revealed that the S&P 500 rose further above its 50-day moving average of 1,673 after finishing Monday’s session with a 0.57 percent advance to 1,697.

Although a head-and-shoulders pattern appeared on the S&P chart from the period beginning in early May through September 6, the S&P recently broke the neckline of the pattern. There had also been a pinhead-and-shoulders pattern running from the period beginning on July 10 through August 16 and the S&P broke the neckline of that pattern on Monday. Its Relative Strength Index rose from 60.79 to 64.18. The MACD continues to rise above the zero line and the signal line, suggesting the likelihood of a further advance.

For Monday, all sectors were in positive territory except for the technology and energy sectors, which declined by 0.14 percent and 0.02 percent, respectively. The industrial sector led the group, with a gain of 1.30 percent.

Consumer Discretionary (NYSEARCA:XLY): +0.45 percent
Technology: (NYSEARCA:XLK): -0.14 percent
Industrials (NYSEARCA:XLI): +1.30 percent
Materials: (NYSEARCA:XLB): +1.11 percent
Energy (NYSEARCA:XLE): -0.02 percent
Financials: (NYSEARCA:XLF): +1.11 percent
Utilities (NYSEARCA:XLU): +0.27 percent
Health Care: (NYSEARCA:XLV): +0.90 percent
Consumer Staples (NYSEARCA:XLP): +0.91 percent

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Bottom line: Investors were encouraged by the withdrawal of Larry Summers from contention as a potential nominee for Federal Reserve Chair, most notably because Summers has been critical of the quantitative easing program. Nevertheless, the rally faded as the day wore on and the S&P 500 and other major indexes closed near their lows on the day, unable to push to new records.

John Nyaradi is the author of The ETF Investing Premium Newsletter.