Yesterday, the S&P 500 closed at 1,065, up 0.7% on the day. Day four of the S&P 500’s rally as the momentum behind the recovery trade continued into Thursday. Also, earnings season got off to a solid start with AA, RT, and MAR and PEP all reporting better-than-expected results on the bottom line, while domestic demand trends are still an issue.
In addition, September same-store sales came in ahead of elevated expectations, rising for the first time in over a year; a number of companies in the retail space also raised EPS guidance.
Four of the six best performing stocks in the Consumer Discretionary (XLY) were Household Durable names, with the LEN and DHI the top two. The homebuilders were up on speculation that expectations that the first-time homebuyer's tax credit would be extended for another 6 months.
The market also benefited from a larger than expected drop in initial claims. Yesterday, initial claims fell 33,000 to 521,000 in the week-ended Oct 3rd; below consensus expectations of 540,000. The four-week moving average fell to 540,000 from 549,000, the lowest level since January 2009.
Yesterday’s portfolio activity included buying EWT – Taiwan Index. Coming in yesterday, Taiwan was down -1.4% over night, and I have been waiting here for a down day to buy into ahead of the Chinese stock market opening again.
The dollar index fell 0.7% to its lowest level since August 2008. Support for our “bombed out buck” is coming from all around the world today. In particular key Asian central banks intervened heavily in the currency markets yesterday on fears that the appreciation of their currencies against the US dollar means that their exports could be losing ground against China.
The VIX declined for the fourth straight day and is now down 15.7% over the past week.
Yesterday four of the nine sectors outperformed the S&P 500, with every sector positive except utilities, which was flat on the day. The three best performing sectors were Materials (XLB), Energy (XLE) and Industrials (XLI), while Utilities (XLU), Healthcare (XLV) and Financials (XLF) were the bottom three. We are currently long the XLV.
Today, the set up for the S&P 500 is: TRADE (1,050) and TREND is positive (988). The Research Edge quantitative models have 9 of 9 sectors in the S&P500 positive on TREND and 8 of 9 sectors are positive from the TRADE duration. The only sector not positive on TRADE is the Utilities.