Stocks Rally On More Easy Money
Stocks soared in October and enjoyed one of their largest monthly gains in years! As a quick review, the bulls regained control of the market on Fri 10/2/15 after September’s weaker than expected jobs report was announced (additionally, Aug’s and July’s jobs reports were both revised lower). That was a pivotal day because it changed the market’s perception and basically eliminated the chance the Fed will rates anytime soon. For months, we have argued that, “Wall Street is ready for a rate hike but Main Street clearly is not. So the easy money trade is alive and well (for now).” Fundamentally, that is the primary driver of this entire/aging bull market and trumps the weak action we continue to see from Main Street (both on the earnings and economic front). Technically, the bulls defended Aug’s low at the end of Sep/early Oct and helped the benchmark S&P 500 form a bullish double bottom pattern “W.” This powerful pattern looks very similar to the Nasdaq in 1998 (before it soared into the March 2000 high). After the August lows were defended and the bulls knew the Fed would not be able to raise rates at their meeting in Oct, the market soared. Later in the month, the Fed did not raise rates and the European Central Bank added more easy money into the mix when they said they are ready to increase and extend QE (print more money), if needed. In the short term, the market is extended to the upside and due for a little pullback here to digest the recent and strong rally off support. We also want to note that over the past four weeks, the S&P 500 soared a whopping +11% which is not an insignificant sum. Remember, in “normal” (non QE) days, a 10% gain for the entire year was considered healthy. The big negative divergence remains the small-cap Russell 2000 and the fact that it is under performing on a relative basis. For now, the easy money trade is back at the fore and everything else is taking a back seat.
Monday-Wednesday’s Action: All Eyes On The Fed
Stocks edged lower on Monday as investors digested a very strong four-week rally. New Home Sales hit an annualized rate of 468k units in September, missing estimates for 550k. It also missed August’s rate of 529k. Stocks slid on Tuesday as the Fed began their October meeting. Before the open, durable goods slid by -1.2%, missing estimates for -1.0%. The Case-Shiller Index rose by 0.1%, matching estimates for 0.1%. The PMI service flash index came in at 54.4, missing estimates for 55.3. Consumer confidence came in at 97.6, missing estimates for 102.5. The Richmond Fed Manufacturing index slid to -1, barely beating estimates for -2. In other news, oil prices continued to slide on supply woes. Stocks soared on Wednesday after the Fed held its latest meeting and decided to keep rates unchanged near zero. That gave the green light that the very powerful easy money trade is alive and well. Shares of Apple (AAPL) rallied after reporting their latest quarterly results. Shares of Twitter (TWTR) fell sharply after releasing earnings.
Thursday-Friday’s Action: Easy Money Sends Stocks Higher..Again
Stocks edged lower on Thursday after the government said Q3 GDP rose by +1.5%, missing estimates for +1.6%. This was the latest in a series of weaker than expected economic results and reiterated our thesis that Main Street is simply not ready for a rate hike (even though Wall Street is). Elsewhere, weekly initial claims level rose to 260k, beating estimates for 264k. After Thursday’s close, shares of LinkedIn (LNKD) rallied after releasing earnings. Stocks were quiet on Friday as investors digested very strong monthly gains on the last trading day of the month..
Market Outlook: Bulls Are Strong
This bull market is aging by any normal definition and will celebrate its 7th anniversary in March 2015. The last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007. The fact that easy money is here to stay (for now) is all that matters. Everything else is noise. Eventually that will change, but for now the bulls remain in control. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access more of Adam’s commentary/thoughts on the market – Join FindLeadingStocks.com.