Tuesday, February 18, 2014

Tuesday Tidings

Stocks are slightly higher in early trading after the long holiday weekend.  Storms continue to hit the east coast and weather could be a factor is some of  the economic data that was released today.

The Empire Manuf. Survey for February fell to 4.5 from 12.5 last month.  But not a big surprise given the weather, and that is likely why we are not seeing stocks react negatively.  Also, the NAHB Housing Market Index plunged to 46 from 46.  But the homebuiler ETFs while lower aren't down huge either.

In the bond market, the weaker economic data could be helping to push yields lower, with the 10-year yield falling back to 2.71%.  But again, this is not a dramatic move lower and the economic data is likely noisy at best given the weather disruptions.

In corporate news, Actavis (ACT) has agreed to acquire Forest Labs (FRX) for $25 billion in cash and stock.  This is helping push both stocks higher as well as improving sentiment for the whole biotech and pharma group.

Asian markets ended mixed.  China was lower but Japan surged +3.1% after the Bank of Japan held its interest rate policy and doubled the level of its bank lending facility.  This was in response to a weaker GDP reading (+1.0%), which also helped push the Yen lower.

European indexes trade mixed.  Germany's ZEW economic sentiment index fell to 55.7 from 61.7.  And ECB member Nowotny said the central bank would not lower its deposit rate without reducing its key lending rate.

The volatility index is higher by 3% back above the 14.0 level as of now.

Trading comments: The stock market put in a strong showing last week with the major indexes regaining their overhead 50-day averages in convincing fashion.  We sold the small hedges we were starting to put on as it now looks like the market is back in rally mode and could test their highs in the short-term.  The SPX pulled back about 6% from peak to trough.  While not the classic 10% correction some were looking for, the 6% is about par for the course in recent years.  That doesn't mean we might not have a 10% pullback at a later date, but for now it looks like the market wants to probe higher levels.


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