Stocks Rally as Investors Reassess Damage Caused by Trump

U.S. stock indexes posted a nice recovery on Thursday after experiencing its worst day of 2017 on Wednesday. The price action suggests a calmer tone as investors reassessed President Donald Trump’s chances of implementing his economic agenda which includes health care reform, tax reform and increased infrastructure spending.

In the cash market, the blue chip Dow Jones Industrial Average closed at 20663.02, up 56.09 or +0.27%. The bench mark S&P 500 Index settled at 2365.72, up 8.69 or +0.37% and the tech-based NASDAQ Composite ended the day at 6053.41, up 42.17 or +0.70%.

U.S. Economic Data

It was a relatively light day on Thursday. Weekly jobless claims totaled 232,000, coming in below the 240,000 forecast. The Philadelphia Federal Reserve manufacturing index surprised investors with a reading of 38.8 in May, up from 22.0 in April. Traders were looking for a reading of 19.9.

Gold

June Comex gold futures finished lower on Thursday after posting its biggest one-day gain since the Brexit announcement last June. A recovery in the U.S. Dollar and increased demand for higher risk assets helped trigger a technical reversal top, indicating that profit-takers and sellers had returned to the market after yesterday’s nearly 2 percent surge.

The price action also suggests that short-covering rather than aggressive buying may have been behind the 7-day rally.

Crude Oil

After trading lower most of the session, July West Texas Intermediate crude oil turned around late in the session to post a strong gain for the day. The price action suggests that holding above $49.29 may indicate the presence of buyers. This could drive the market into $50.51, which is the next technical resistance level.

Early in the session, traders were expressing a bearish bias due to concerns over the high U.S. supply. However, late in the day, the market was boosted on growing signs that key oil producers will adhere to production cuts at next week’s OPEC meeting.

Forex

June U.S. Dollar Index futures retreated early in the session, but recovered strong enough into the close to produce a technical closing price reversal bottom. Oversold technical indicators may have also contributed to the move.

Fundamentally, a steep reversal to the downside by the British Pound and a reversal to the upside by the USD/JPY also contributed to the volatile price action.

Currency traders said the reemergence of a CSPAN video from earlier in the month that some falsely interpreted as former FBI Director James Comey saying he was never pressured to end an FBI probe by President Trump, was blamed for the steep sell-off in the currency market and the short-covering rally by the U.S. Dollar.

Greater demand for higher risk assets also led to a reversal to the upside by the USD/JPY. The size of the mover suggests we could see a follow-through rally on Friday.