Bulls March On Powered By Good Data

Wed pic

[Chart courtesy of MarketWatch.com]

Domestic stocks rallied to close higher for a second-straight session, led by automakers and technology companies, as a Senate panel voted to authorize military action in Syria and on the heels of the Federal Reserve releasing an upbeat Beige Book report.

The S&P 500 settled higher after regaining its 100-day moving average shortly after the open. About 6.1 billion shares changed hands on U.S. exchanges today, slightly below the daily average so far this year.

The major automakers reported U.S. August sales today, with Chrysler’s, Ford’s, and General Motor’s sales rising at least 12.0% y/y, all beat out analysts’ growth expectations. Today’s numbers marked the strongest month since October 2007. Meanwhile, the Federal Reserve also released its Beige Book, a summary of anecdotal economic data from all twelve Fed districts.

The report characterized overall economic activity as continuing to increase at a “modest to moderate pace,” with consumer spending rising in most districts. Meanwhile, manufacturing activity “expanded modestly,” and hiring “held steady or increased modestly” relative to the prior reporting period. In other areas of the report such as inflation, the report showed upward price pressures “remained subdued,” with wage pressures continuing to be modest overall.

Today’s report was generally positive, but probably not strong enough to clear up the uncertainty if the Fed will begin to taper its asset purchases in September. While there are signs of improvement, as the leading indicator of initial jobless recently hit the lowest level since 2007, there remain concerns about the quality of improvement in the labor market.

The resulting uncertainty about the Fed’s moves is just one of several upcoming reasons I believe markets could remain volatile in the near term. The S&P 500 has lost 3.3 percent from a record on Aug. 2 amid speculation the Fed will scale back its bond buying. Today, however, Nine of ten sectors posted gains with health care (+1.1%) ending in the lead.

The sector received significant support from biotechnology as the iShares Nasdaq Biotechnology ETF climbed 1.8%. The outperformance of biotech and technology helped the Nasdaq settle ahead of the other indices.

Outside of health care and technology, industrials (+1.0%), materials (+0.9%), telecom services (+1.3%), and discretionary shares (+1.0%) settled ahead of the broader market. The financial sector (+0.8%) was the early leader, but surrendered its spot as the afternoon progressed. The utilities space (-0.1%) was the lone decliner while consumer staples (+0.5%) and energy (+0.5%) underperformed.

Our Trend Tracking Indexes (TTIs) headed further away from their long-term trend lines and settled at +1.30% (Domestic TTI) and +4.05% (International TTI).

About Ulli Niemann

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