The Dow Jones Industrial Average rallied out of the red Monday as investors shook off geopolitical worries amid Israel’s offensive against Hamas. The likes of SLB (SLB), Chevron (CVX) and Exxon Mobil (XOM) popped even though Treasury Secretary Janet Yellen made an oil price pledge in the face of the Middle East hostilities. Meanwhile, some Warren Buffett stocks tested aggressive early entry points.
Defense stocks General Dynamics (GD), L3Harris Technologies (LHX) and Northrop Grumman (NOC) were among defense industry players that made big moves. Chevron and Occidental Petroleum (OXY) were two Buffett stocks that tested new entries.
And despite a dearth of breakouts, Cadence Design Systems (CDNS) tested a buy point.
Fed Talk Sooths Investors Amid Israel Worries
Israel declared war in response to the attack by Islamist militant group Hamas, which left more than 900 people dead. Israeli forces went on the offensive, with Prime Minister Benjamin Netanyahu saying that the current response “is only the beginning.”
Oanda senior market analyst Edward Moya said the attack had triggered “a wave of safe-haven flows toward bonds, oil, and gold.”
“U.S. stocks dropped in the wake of the Hamas attack on Israel but have pared losses after Fed’s Logan downplayed the need for more rate hikes,” he said in a note to clients. “It was supposed to be a quiet Monday morning given the Columbus Day holiday, which includes the closure of the U.S. bond market.”
Dallas Fed President Lorie Logan said that if long-term interest rates remain elevated because of higher term premiums “there may be less need to raise the fed funds rate.” But she did try to strike a balance by saying the Federal Open Market Committee may have to do more to tackle inflation.
Nasdaq Reverses Higher, Small Caps Shine
The tech-heavy Nasdaq rallied out of the red to gain 0.4%. Leaderboard stock Zscaler (ZS) excelled here with a gain of 3.2%.
The S&P 500 also reversed higher, rising 0.6%. Defense stocks fared best among individual industries on the benchmark index.
The S&P 500 sectors all closed in positive territory. Energy and industrials — the latter aided by defense stocks — sat atop the index on the stock market today. Financials turned in the slimmest gains.
Small caps saw some gains fade late, but the Russell 2000 still rose 0.5%. Growth stocks fared best of all, with the Innovator IBD 50 ETF (FFTY) closing up 1%.
Dow Jones Today: Disney Stock Pops
The Dow Jones Industrial Average also managed to fight its way into positive territory.
Outside of Chevron, which rose 2.8%, Walt Disney (DIS) was the top performer. The media stock popped 2.1%. The entertainment giant managed to clamber back above the 50-day moving average, MarketSmith analysis shows.
DIS stock rallied after it emerged activist investor Nelson Peltz’s Trian Fund Management has increased its holdings. The firm also could seek multiple seats on the board.
Energy Stocks Gain Despite Yellen Oil Price Pledge
The potential for conflict in the Middle East was enough to outweigh hawkish talk from Treasury Secretary Yellen on oil.
She moved to underline the Biden Administration’s determination to enforce the $60-a-barrel price imposed on Russian oil due to its war with Ukraine.
“We are looking at enforcement very carefully and we want to make sure that market participants are aware we take this price cap seriously, and, to the extent Western services are used, we mean business about abiding by the cap,” Yellen told The Wall Street Journal.
But oil stocks rallied Monday as the price of West Texas Intermediate crude gained.
Dow Jones: Warren Buffett Stocks Test Entry
A couple of Buffett stocks are testing aggressive early buy points, but investors should be thinking very seriously before pulling the trigger.
Chevron gapped up through its 50-day and 200-day moving averages as well as its short-term moving averages. The move above the 50-day line stands as an entry for aggressive investors. However, overall performance remains lackluster, as reflected in its IBD Composite Rating of 61 out of 99.
Occidental also gapped through all of its moving averages and now sits just above its 50-day line. While this could be viewed as an entry, the stock has been on a downtrend. Further, its overall performance leaves much to be desired.
Both stocks are currently a part of the Berkshire Hathaway (BRKB) portfolio, which is run by Buffett. It comes after the Wall Street Journal reported that Chevron actually considered acquiring Occidental before cooling on the idea.
Buffett has been steadily buying up OXY stock. Last year, the investing legend received regulatory approval to purchase up to 50% of the oil giant.
IBD recommends buying stocks with strong earnings and price performance rather than laggards. Look for leaders in strong industries that are showing superior earnings growth and sales, such as those in the IBD 50.
Defense Stocks Soar Amid Geopolitical Risk
A number of defense stocks, which have underperformed so far in 2023, made muscular moves amid increasing global risks.
General Dynamics steered clear of its major moving averages as it powered 8.4% higher. L3Harris Technologies managed to climb above its 50-day moving average as it popped 9.9%. Its struggles over the past 12 months show up in its Relative Strength Rating of 20 out of 99.
Meanwhile, Northrop Grumman punched clear of both its 50-day and 200-day moving averages as it vaulted 11.4%. Overall performance is mediocre, with its IBD Composite Rating coming in at 66 out of 99.
Also, Leaderboard Watchlist name Woodward (WWD) moved above its 50-day moving average, a bullish sign, as it gained 2.1%. It remains below a new flat-base entry of 133.15 for now but its relative strength line reached fresh heights.
The company designs and makes control systems and control system components for a wide variety of military vehicles, aircraft engines, industrial engines and power generation equipment.
Outside Dow Jones: CDNS Stock Tests Entry
With the market back in a confirmed uptrend investors can once again consider taking advantage of breakouts.
Cadence Design Systems tested a buy point, and is currently trading near its cup-with-handle entry of 247.50. The relative strength line looks muscular. Further, overall performance is strong here, which is reflected in its IBD Composite Rating of 93 out of 99.
Big Money has been holding steady on CDNS stock recently, with its Accumulation/Distribution Rating coming in at C-.
Investors should be looking to raise exposure at a measured pace. They should try to take advantage of watchlists built up during the correction period.
Please follow Michael Larkin on X, formerly known as Twitter, at @IBD_MLarkin for more analysis of growth stocks.
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