The S&P 500 closed over 1700 for the first time and posted a 1.25% gain. The Dow was higher by 0.83%. Equity futures signaled a strong open on positive news from foreign markets overnight. Asian markets rallied after the Fed statements here yesterday and stronger than expected PMI data from China. The market received more fuel from the European Central Bank during the day. The ECB said they would keep rates low for the foreseeable future.
The ISM Manufacturing Index jumped to 55.4 in July, up from 50.9 in June. This was the strongest reading since June of 2011. This number erased fears of a manufacturing slowdown due to a weak number posted in May.
Trading desks harped on several key drivers for the market today. The ECB continues to make it clear that they will be accommodative in Europe for as long as it takes. European economic numbers have improved and the central bankers there will remain accommodative. Investors here feel more comfortable that our Fed will not begin tapering until the economy can support growth on its own. Earnings have been strong and corporate balance sheets are very strong. More than 70% of companies have exceeded earnings expectations and more than half the companies that have reported have beat revenue estimates. Valuations remain reasonable and finally sentiment remains in check. The market continues to climb a wall of worry as many remain on the sidelines waiting to invest on the next pullback. As more bears capitulate and more money rotates into equities from bonds and elsewhere, the market continues to move higher.
Banks and life insurers led the financial sector higher today. Several insurers posted blowout earnings prior to the open and buyers came in and aggressively bid up the group. The continued steepening of the yield curve helped banks today. Both regional and money center banks were higher. Discount brokers again moved to new highs on strong trading volume and projected growth in assets under management. Interest rate sensitive REITs were the laggards of the sector.
PC related stocks were the one area of weakness in the tech sector. Semiconductors rose 1.7%. Many mid to small sized semiconductor names have had very impressive moves for the past several weeks. Several mid-cap software names moved aggressively higher after reporting better than expected earnings. The mega-cap tech names were clearly out of favor today.
Better than expected economic data here and abroad drove industrial stocks higher. The industrial sector rose 1.7%. With the strong ISM numbers here and the Chinese PMI moving over 50, industrials were bought across the board. Multi-line industrials were helped by stronger than expected earnings from ITT Industries. Transports are heavily leveraged to the health of the overall economy. Rails were strong with Union Pacific leading the way. Aerospace and defense names continued their unrelenting move higher.
Energy finished in line with the tape even with Exxon declining on disappointing earnings. Energy was similar to technology today in that the mega-cap names were the clear laggards. Many small and mid-size energy names broke out to new highs as crude rose 2.75% today. Natural gas declined 1.5%.
Positive earnings from CBS were the catalyst for the media space. Ad companies benefitted from the strong economic reports. Internet names were led by Yelp which reported a great quarter after the close last night. Yelp gained 23% on the day and helped names like Zillow, Open Table, and Linked In.
Consumer discretionary outperformed consumer staples in the risk-on environment. Retail was a big winner today. Limited, Nike, Foot Locker, and Starbucks were big winners on the day. A leader in consumer staples was Procter & Gamble. P&G reported strong earrings and broke out to a new high. Clorox and Avon were weak consumer names.
Source: PFS Group
