In the current, low-impact news environment, the major market indexes have held in tight trading ranges each day for the past 12 trading sessions. Later this week or next, that dynamic may change as investors decide to make changes in their portfolio. While the S&P 500 (SPX) an Nasdaq 100 (NDX) rose slightly on the day, the Dow Jones Industrial Average (DJX) remained essentially unchanged.
However, Fed Chair Jerome Powell will testify before Joint Economic Committee members in Washington D.C. on Wednesday and on Thursday. In the absence of other news, this could change investors perceptions about the importance of what is happening in the U.S. economy. Their subsequent reaction might move market prices to a greater extent than they have moved in recent days. It wouldn't be the first time that traders and investors have overreacted to the Fed Chair's statements.
If the news is positive, then market watchers might notice the impact on semiconductor manufacturers, which began a new upward trend this quarter. Among stocks in that industry, two stand out: Advanced Micro Devices, Inc. (AMD) and NVIDIA Corporation (NVDA), both of which may be benefiting from a renewed popular interest in bitcoin (see chart below).
Interest Rates Could Rise, and Certain Stocks Would Benefit
For the third time this year, the Federal Reserve cut its target lending rate. However, that hasn't stopped the 10-year Treasury Note index (TNX) from rising significantly since Oct. 1. It may be that markets eager to attract investors need to lift rates in order to entice more bond buyers to the table, but whatever the reason for increasing rates, it is usually a drag on the stock market and a mathematical negative to the bond market.
But not all investments will find this condition to be a headwind. Consider that shares of TD Ameritrade Holding Corporation (AMTD) typically rise with the anticipation of higher interest rates. That's because the analysts know that the company's business model relies heavily on gains it makes from its holdings as interest rates rise. Stocks in the financial sector, as tracked by State Street's SPDR Financial Sector Index ETF (XLF), also tend to trend with rising interest rates (see chart below). Lastly, Barclays UltraShort 20+ Year Treasury fund (TBT), which trades as an exchange-traded fund (ETF) with an inverse relationship to bond prices, is also tracking the rise of interest rates.
Investors May be Finding Their Way Back to GE
Shares of General Electric Company (GE) have made the best eight-day run in the stock's storied history. Prices have jumped based on the reports from GE's most recent quarterly earnings call, which were optimistic about the company's future prospects.
The Bottom Line
The trading range stocks have been constrained to over the past 12 trading sessions has occurred as the earnings season has begun to wind down and news headlines have driven less and less fear among investors. Interest rates may begin to rise if the 10-year Treasury note index is any indicator, and this will lead certain stocks higher. Investors looking for stronger returns may be tempted to consider low-priced shares of a formerly strong company such as General Electric.
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