Stocks Mixed as Dow Inches Toward 21,000

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U.S. equities churned near the unchanged line on Thursday, with the Dow Jones Industrial Average recovering from early session weakness to notch another new record high. No major catalysts were in play, with investors continuing to monitor the situation in Washington for clues on the path of tax, regulatory and healthcare policy going forward.

In the end, the Dow gained 0.2%, the S&P 500 gained a fraction, the Nasdaq Composite lost 0.4% and the Russell 2000 lost 0.7%. Treasury bonds were stronger, the dollar was weaker, gold finished up 1.5% and crude oil moved higher on a smaller-than-expected inventory gain.

Despite the Dow's triumphant rise, closing more than 60 points off its lows, trading had a defensive tone with utilities and telecoms leading the way with rises of near 1%. Industrials and consumer discretionary stocks were the laggards, down 0.8% and 0.7%, respectively.

Payments processor Square Inc (NYSE: SQ ) blasted 14% higher on a fourth-quarter earnings and revenue beat and solid forward guidance. Analysts were positive on the specter of margin expansion. HP Inc (NYSE: HPQ ) gained 8.6% on solid quarterly results driven by strong uptake of PCs, new products and market share gains.

On the downside, Nvidia Corporation (NASDAQ: NVDA ) lost 9.3% after being downgraded by analysts at Nomura warning the market was underappreciating a slowdown in PC gaming. Tesla Inc (NASDAQ: TSLA ) fell 6.4% on messy fourth-quarter results featuring a drop in profitability in auto sales and weak cash flow.

On the policy front, comments from Treasury Secretary Mnuchin suggested the timing on tax reform could be later into 2017 than many expect. President Trump, in an interview with Reuters, said he supported "some form" of a border tax and that both tax reform and healthcare would be tackled together - no doubt due to rules in the Senate related to avoiding a filibuster - which will make the legislation more complex and unwieldy.

Translation: This is going to take time.

Supporting this takeaway was another article in Axios suggesting the GOP may delay a push on infrastructure spending until closer to the 2018 mid-term elections to increase the pressure on Congressional Democrats to support their efforts to show efforts to provide jobs and projects for their home districts. The report pressured stocks in the machinery, engineering/construction and steel industries.

The technical situation remains a mess - featuring overextended momentum measures, narrow breadth and extreme sentiment. So nothing new there.

What is new is chatter on trading desks comparing the current market melt up to the situation heading into the October 1987 market crash. For one, the Dow's current winning (10 record closes in a row) is the longest since January 1987. Then, like now, Wall Street was breathlessly pricing in the prospect of deregulation and tax reform from a new Republican President (Ronald Reagan then, Donald Trump now).

Reagan's tax plan was passed in October 1986 and implemented in July 1987. Stocks collapsed 30% in a "sell the news" dynamic, as stocks, according to Barclays, had all the positive news already priced in stretching valuations. The Federal Reserve responded by raising interest rates from 5.9% to 7.2% between October 1986 and September 1987.

Are we headed for a similar outcome as the Fed mulls a rate hike in March?

Anthony Mirhaydari is founder of theEdgeandEdge Proinvestment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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