Stocks finished higher for the fourth straight day today. The S&P 500 climbed 0.72% with the Dow and NASDAQ up 0.60% and 0.45% respectively. The pain trade seems higher. While there are issues that bears can point to—fiscal cliff, slowing global growth and potentially muted corporate earnings—the market takes all things into consideration and continues to move higher.
The risk on trade was in vogue today. Cyclical stocks led the market. Financials were particularly strong. The bank index was up nearly 2%. Heavy buying continues to be seen in the major banks and large brokers. Wells Fargo, Bank of America, Morgan Stanley and Goldman Sachs were all up nicely today. Strength in the banks is a reflection of continued optimism regarding the recovery of the U.S. housing market. The sustainability of the resurgence in housing will be helped by the launch of the Fed’s QE-MBS purchases.
Materials were higher today on news that Posco was looking to make acquisitions in the area. Other steel stocks rallied on this news and the risk-on nature of today’s trading.
There was little concrete from the European front today. Draghi did voice continued support for the OMT. The consensus view now appears to be when Spain will make its formal request not if. So, with potential negative developments in Spain being discounted the market is moving higher.
The macro picture improvement this week is also acting as a catalyst. ISM numbers, ADP jobs reports, jobless claims and auto sales data this week were all favorable. These improvements are taking place in an environment where the Fed has made it clear that rate hikes are not on the horizon.
Negative sentiment on Wall Street could also be a catalyst for continued strength in equities. There is a disconnect between the consensus in earnings estimates for the S&P 500 in aggregate and the viewpoint of market strategists. Strategists have focused on the potential negatives all year and have conservative guidance on aggregate market earnings. Strategist's estimates are less than estimates of the analysts that cover individual companies. Earnings estimates derived from just adding the estimates of each company in the S&P 500 are higher than the estimates from Wall Street’s strategists. There is a growing camp that believes that earnings estimates for the next several quarters could exceed expectations.
The energy sector traded up close to 1% today. Crude spiked higher by close to 3.5%. Strong crack spreads helped the refiners. Oil service names were led by Haliburton rising by close to 3%.
Technology stocks continued to trade poorly. Weak guidance in the semiconductor and hardware areas led to selling but slowed near the end of the day and tech finished off its lows.
Retail was mixed today on the release of September same store sales data. Several companies reported numbers above analyst estimates and many other released disappointing numbers. On the whole, retail slightly outperformed the market.
Source: PFS Group
