US Stocks Crawl Higher On Budget Hopes, Fed Stimulus; Europe Rises On German Confidence

[Chart courtesy of MarketWatch.com]

US stocks finished higher with the Dow Industrials erasing losses since the Election Day and the S&P 500 rising for the fifth straight day as optimism grew that the Federal Reserve will announce more stimulus when wrapping up its final meeting of the year tomorrow and awaited progress on federal budget negotiations in Washington hopefully comes to pass.

Equity averages trimmed early gains after Senate Majority Leader Harry Reid said the Republicans have offered no details on what they want from the negotiations. However, House Speaker John Boehner said he was hopeful of an accord while addressing the House of Representatives Tuesday.

The two-day long Federal Reserve Open Market Committee meeting began in Washington today that will end in updated projections on unemployment, inflation and economic growth. Investors expect the Fed to supplement the $40 billion a month mortgage-purchases with another round of Treasury purchases when their bond swapping program, known as Operation Twist, expires at the end of the month.

After adding as much as 136 points, the Dow Jones Industrial Average (DJIA) finished 79 points higher at, logging its fifth straight session of gains. As the blue-chip index marked its longest winning run since mid-March, breadth turned overtly positive with winners outnumbering decliners 26 to 4.

The S&P 500 Index (SPX) rose 9 points, its highest since the US presidential election, with technology advancing the most and all 10 industry sectors ending in the positive territory.

Treasuries retreated, pushing yields up, as investors sought higher yield assets amid speculations of more bond purchases by the Federal Reserve. The benchmark 10-year Treasury yield rose three basis points to 1.65 percent, its highest in two-weeks, while yield on 30-year Treasury bonds rose four basis points to 2.84 percent.

Amid speculation of further asset purchase that are seen as weakening the country’s currency, the US dollar fell Tuesday after the US Fed policy makers began a two-day policy meeting in Washington.

European stocks rose on Tuesday after a gauge of German investor confidence rose more than expected and traders watched the ongoing US budget negotiations keenly.

The Stoxx Europe 600 index rose 0.3 percent to 280.49, marking its seventh straight session of gains, its longest winning streak since June 2011.

The German ZEW economic expectations index jumped to 6.9 in December, handily beating the minus 11.3 reading put forward by economists. The benchmark, a gauge of German investor confidence, rose more sharply than expected from minus 15.7 in November on hopes that the current cooling down of economic activity will not extend beyond 2012 and Berlin will not have to witness a recession.

Greece stocks rallied with the Athens General Index surging 2.3 percent after the country’s bond buyback program attracted bids for EUR 31.8 billion. There was however, a EUR 450 million shortfall as average price paid was a little higher than expected.

In term of trends, our Trend Tracking Indexes (TTIs) rallied with the indexes and reached the following positions:

Domestic TTI: +2.12%

International TTI: +6.21%

Again, volume was downright atrocious and High Frequency Trading dominated market activity, as it has for quite some time, with many retail investors having headed for the sidelines.

With the market indexes floating on nothing but hot air and hope, in the absence of any positive economic fundamentals, there is bound to be a reality check setting in at some point. The timing of it is just the big unknown.

 

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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