Market Up Sharply on Good News from Europe and the Jobs Front

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Stocks began the day with a large spike higher at the open. Buyers came in and added to the rally in the first hour of trading. The rest of the day was spent hovering near session highs. The Bernanke Put now has a companion in the Draghi Put. Comments from Mario Draghi that the European Central Bank planned to buy bonds of troubled sovereign nations that ask for help sparked the buying frenzy.

Futures pointed to a higher open as European markets were strong ahead of the European Central Bank press conference. Central Bank President Mario Draghi presented a bond buying plan that is essentially in line with expectations. U.S. employment data was also stronger than expected.

The take away from Europe is that Mario Draghi is still willing and able to do “whatever it takes to save the Euro.” He said the European Central Bank will act strictly within its mandate and will buy bonds with maturities of less than three years. He is launching his plan of “outright monetary transactions” to support the European Union. The European Central Bank leaves the main financing operation rate unchanged at 0.75%. They also left the deposit rate unchanged at 0.00% and the Marginal Lending facility at 1.50%. Mr. Draghi said that within his mandate the bond purchases are unlimited and will be fully sterilized. 

European trading was very strong as European stocks hit multi-month highs. Banks, autos and basic materials led the way in trading in Europe.

ADP Employment numbers came in better than expected. The actual figure of 201,000 additional jobs came in well above the expectation of 143,000. Initial jobless claims were better than expected as the actual number of 365,000 was below the expected number of 373,000. The August ISM Services number of 53.7 was ahead of the estimate of 52.4. 

The risk on area of the market was particularly strong today. Financials, tech, industrials, energy and materials were all up sharply today. Correlations were high as the more conservative areas of the market—healthcare, telecoms and staples—were also up sharply. 

There was a big rally in the financial sector today. Banks, brokers and life-insurers led the way. Increased optimism about Europe helped the money center banks and brokers. Continued strength in the homebuilding sector also had a positive impact to banks that are big mortgage lenders here in the U.S. 

Tomorrow we will get the release of the August nonfarm payroll report and the unemployment rate. 

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About Thomas J Smith CFA