Thursday, October 10, 2013

Band-Aids From Washington

Stocks are rallying sharply amid optimism that some headway is being made in Washington.  Reports indicate House Republicans floated the idea of a short-term debt increase in exchange for a promise to work on broader spending reform.  But it sounds like this would just be a 6-week increase, and then we would be right back where we are today.  Better than a default, but certainly not the most bullish outcome in that it is just a short-term band aid.

There hasn't been much other news that is moving markets.  CTXS lowered guidance last night and the stock is getting hit hard.  But some of the big banks start to report tomorrow and that will likely have more of an effect on investor sentiment.

Asian markets were mixed overnight.  China fell -0.9% despite reassurances from China's Premier that GDP will stay above its 7.5% target for the first three quarters of the year.  Elsewhere, the Bank of Korea held interest rates steady at 2.50%.

Europe's markets are higher this morning, likely on optimism out of Washington.  Spain and Italy are leading the upside action.

The dollar is a bit higher also, but commodities are mixed.  Oil prices are higher near $102.75 but gold prices are lower and testing the $1300 level again.

The 10-year yield is getting a bounce above the 2.71% level.  And the volatility index which briefly hit 21 yesterday is down over 10% this morning to 17.50.

Trading comment: It seems unlikely that such a short-term solution to the debt ceiling will lead to a durable rally in the stock market.  Unless real progress is made soon it wouldn't be surprising to see some of this optimism fade again.  So we don't want to chase stocks today but would rather be patient and use further dips to accumulate positions.  We also want to see how earnings season starts to shape up as it kicks into higher gear next week.


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