Friday, October 11, 2013

Stocks Adding To Yesterday's Rally

Stocks enjoyed an outsized rally yesterday, snapping back from multi day losses on hopes of a deal getting done in Washington.  A deal to extend the debt ceiling by 6 weeks is nothing to jump up and down about, but stocks had gotten oversold and were due for a snapback.  This morning stocks are adding to yesterday's gains, but it's still early so we will have to see how the day unfolds.

In earnings news, JPMorgan and Wells Fargo released earnings.  JPM topped estimates while WFC's results were mixed.  WFC stocks is slightly lower currently while JPM is up a touch.

In economic news, the prelim Univ of Mich sentiment report for October decreased to 72.5 from 77.5 last month.

Investors continue to watch headlines out of Washington.  Initial reports indicated the President rejected a GOP proposal to extend the debt ceiling for six weeks.  But now reports indicate that talks are still ongoing and nothing definitive has been decided.  Stocks continue to rise and seem to be pricing in a favorable outcome.

Asian markets were sharply higher overnight on the heels of the rally in the US yesterday.  A PBOC governor confirmed China's growth will remain above 7.5%.  China rallied +1.7% last night. 

Europe's markets are mostly higher today, but Italy is not participating as there continues to be drama within their govt., this time with Mario Monti threatening to withdraw his party.

Gold prices are significantly weak today, falling down to the $1268 level.  We recently sold the last of our gold etf (GLD) that we have traded around for years after it broke back below its 50-day support.  Goldman predicts gold will fall to $1050 next year.  While we aren't quite that bearish, we no longer think gold will be a performance driver for portfolios.

The 10-year yield is fading back to 2.66%.  And the VIX is down another -5.5% to 15.55.  That's a big drop from the 21 level in just 2 days.  We have watched this 15 level all year as the level that brings out more bullishness should the VIX dip below it again.

Trading comment: The last 2 days action has been quite positive, despite the fact that any agreement for a 6-week debt ceiling extension merely puts us right back in this uncertain position around the time of Thanksgiving.  But for now investors feel better and the S&P 500 is back at the 1700 level.  We still want to see how earnings season shapes up the next few weeks.  But stocks that report strong earnings should be the best candidates to lead the market into year end.


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