China Announces Major Stimulus Program; Market Stalls on Job Numbers

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The S&P 500 closed the week at its highs. Stocks advanced Friday after the huge spike higher yesterday. The Dow and the NASDAQ did not fare as well today as they just barely closed in the black. The event from today that could be the most beneficial to the markets over the coming months was the $154 billion stimulus package announced in China

The fear of things coming unglued in Europe and the threat of a hard landing in China has been the two largest fears in the market. The European Central Bank gave their solution to things on the Continent yesterday and the central planners in China announced they were going to open their checkbook and spend an awful lot of money in order to keep the growth machine in China going forward. That announcement was not getting enough attention today in my opinion. 

Futures pointed to a flurry of trading early in the morning. Activity would be driven from the release of economic numbers prior to the open. Nonfarm payrolls came in below consensus. 96,000 jobs were added, worse than the consensus estimate of 130,000. Also, tech leader Intel lowered its third quarter guidance. Disappointing guidance from Intel outs the entire tech sector under pressure. 

Several large cap Dow stocks, which had been leading the market for several months, came under pressure today. Kraft, after hitting highs yesterday, came under selling pressure today. They gave muted guidance on their long anticipated spin-off. They said the focus going forward was going to be on cash flow generation and increased dividends. They guided earnings down slightly. The stock came under pressure from the open as profit takers came in and sold the bellwether after it hit multi-year highs yesterday. Wal-Mart, Verizon, Microsoft and Cisco were other Dow names that performed poorly today.

Financials continue to outperform the market. Financials have been strong all week and they traded higher today. The bank index was also up again sharply. Regional banks and large multi-nationals both traded higher. The events in Europe are having a huge positive impact on the large global money centers/brokers like Goldman Sachs and Morgan Stanley. Giant domestic focused banks like Bank of America and Wells Fargo have been up sharply this week. Bank of America has been especially strong posting gains of better than 4% in each of the last two trading sessions. 

The materials sector roared ahead in response to the news from China. Base metals, steels, and copper were all sharply higher. Gold and silver also traded higher all day. The weaker than expected jobs report renewed hopes for another round of quantitative easing. Fertilizer stocks also continued to work higher after a sharp advance over the past few days. 

The energy sector traded higher today. Trading was mixed based on the industry within the sector. Natural gas traded off sharply as cooler temperatures reduced demand. Integrated oil stocks as well as drillers and services all were in favor today.

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About Thomas J Smith CFA