The S&P 500 Indices posted its best performance since December 2014

BY  | FROM  | 2015-10-12 15:46

There’s a great, big, beautiful tomorrow, coming at the start of every earnings season—and the market had its “tomorrow” this week, as it posted its best performance since December 2014.  The beautiful tomorrow belief was inspired by optimism over the upcoming earnings season and the fact that while growth may be curbing, it is continuing.  Of course, the true wings beneath the optimism were from the Fed and the belief that it would not increase interest rates this year (even as Atlanta Fed President Lockhart said on Friday that this year was still probable), and therefore it would keep interest rates low (not that they were expected to increase fast once they do start going up).  While hope may spring eternal, earnings season starts next Tuesday with the big banks (Bank of America, CitiGroup, JPMorgan, Wells Fargo, etc.), and reality had better be good, given the market has already traded up on it.  Note that Monday is a Federal Holiday, and banks and some companies are closed—but not the New York Stock Exchange.  For “them” it is open and work as usual, and therefore, for “us” it is also open, but don’t expect too much work (or volume). 
In economic news, Saudi Arabia cut its oil price for Asia, as it matched other OPEC nations, as oil got close to USD 50 on Friday (its first sighting since July) and closed at USD 49.49.  The IMF again reduced its expected 2015 growth rate, this time to 3.1% from the previous 3.3%, as it also reduced the 2016 projection to 3.6% from 3.8%.  German Manufacturing Orders for August declined 1.8%, when a 0.3% gain was expected; demand from outside the eurozone, which declined 3.7%, appeared to be the issue.  The Bank of England kept its interest rates unchanged at 0.5%, as U.K. inflation remained at zero. In the U.S., the September Services PMI disappointed (at 55.1 when 55.8 was expected), as did the ISM Non-Manufacturing Index (56.9 when a 58.0 was expected). The September Export Price Index posted a year-over-year rate of -7.4%, as the Import Price Index was at -10.7% year-over-year. The Fed notes from its September meeting showed it did not increase interest rates due to its concern over low inflation and global growth.  It did feel its employment objectives were within sight and under control.  The Fed’s delay, even before the poor employment report, gave support to the continuance of low rates, which the market liked and moved up on, and helped support stocks.  M&A was light, but fun, this week, as AB InBev (AHBIF) increased its offer for SABMiller (SBMRF), which had rejected its lower bid before, and then it rejected the new one as well.  Many felt the rejections appeared more like negotiations. 
In issue news, Alcoa (up 7.7% for the week) started the official earnings season with a miss, as it moved higher as a rebound play (off 35.0% year-to-date).  Yum! Brands (YUM; off 13.9% for the week) also missed significantly (but it was not a rebound candidate, at this time), as it reported less-than-expected growth in China and India—two countries that investors are focused on. Activist investor Nelson Peltz’s Trian Fund said it had a USD 2.5 billion investment (approximately 1%) in industrial issue General Electric (GE; up 10.0% for the week).  Social media issue Twitter (TWTR; up 17.3% for the week) named co-founder Jack Dorsey as its permanent CEO.  Bio-tech issues continued to be pushed down, with the poster child for quick declines being Exact sciences (EXAS), which fell 53.0% for the week, as its new colon drug was not included in an independent list of recommended drugs. 
The market closed the week (with smiles on its balance sheets) at 2,014.89, above the 2,000 mark, which was appearing to be a resistance point, with a broad 3.26% gain.  It was the best week since its 3.41% gain in December 2014 and the first back-to-back weekly gain since June.  The market posted gains for four of its five days (Tuesday posted a 0.36% decline), and it has posted gains in seven of the past eight days (with a cumulative gain of 6.94%).  The market has now gained back 7.89% back from its August 25, 2015, recent low (1,867.61) and stands 4.16% below its recent Aug. 17, 2015, high (2,102.44) and 5.44% off its May 21, 2015, closing high (2,130.82).  Year-to-date, the index remains 2.14% lower, but optimism is running high for the year to be in the black, but not for it to continue the three-year run of double-digit returns.  Breadth was strongly positive, as the market posted its best week since December 2014. 
For the week, 440 issues gained, up from last week’s strong 314 issues, as only 65 issues declined, down from last week’s 189.  Forty-three issues gained at least 10% (six did last week), and another 117 issues were up at least 5% (33 last week).  One issue declined at least 10% (four last week), and another seven issues lost at least 5% (10 last week).   All 10 sectors gained for the week, up from last week’s eight.  Energy did the best, rebounding 7.77% after last week’s 2.81%.  The sector remains off 13.71% year-to-date.  Materials were right behind with a 6.77% gain, after last week’s 2.17% gain, but it remains 9.18% in the red year-to-date.  Health care did the poorest, as it managed to post a minor gain of 0.25%, thanks to Friday’s 0.44% gain, as bio-tech issues remained under pressure for the entire week (off 1.5% for the week).  Consumer discretionary added 2.44% for the week and remains the best sector year-to-date, up 7.69%.
Trading volume remained at a high level and was flat for the week, as it remained 19% higher than the one-year average.  Optimism and momentum made appearances during the week, which helped trading.  Measurable volatility (the high-over-low price variance) declined but remained high, as it fell to 3.37% from last week’s 4.24% and the prior week’s 3.70%.  The VIX moved down again, as it closed at 17.08, down from last week’s 20.94.  Interest rates increased from their knee-jerk declines last Friday (over the employment report), but they remained low.  The 10-year U.S. Treasury yield closed 2.09% up from the prior week’s 1.99%, and the 30-year closed at 2.92%, down from 2.83%.  At this point, the money is saying interest rates will decline year-over-year.  Oil was volatile, as it flirted with the USD 50 level, closing the week at USD 49.49, up from last week’s USD 45.66.  Gold closed up at USD 1,155.60, up from last week’s USD 1,137.60.  The euro closed at 1.1359, down from the prior week’s 1.1214.  The pound was at 1.5330, down from the previous week’s 1.5180, and the yen (quoted in yen-to-U.S. dollar, so higher is weaker) was at 120.24, which was up from the prior week’s 119.90.  The yuan closed at 6.3447, up from last week’s 6.3552. S&P Dow Jones Indices added research and consulting company Verisk Analytics (VRSK) to the S&P 500 and removed construction machinery issue Joy Global (JOY).
Next Monday is a U.S. Federal Holiday (Columbus Day—the fall guy blamed for discovering America), as banks are closed, but U.S. equity markets are open—with expected low trading and few U.S. announcements.  Tuesday, however, will start bank earnings (as well as Caterpillar, International Business Machines, McDonald’s, and Yahoo! during the week), as the market and trades focus on earnings.  The Fed, however, will still be in the news and our thoughts with every economic report issued (in the U.S. or abroad).
The next two weeks will be dominated by earnings, as 113 issues, representing 24.3% of the market, are scheduled to report, with 172 issues, representing 31.4% of the market, reporting the week after that—when the Fed meets, so earnings will have to share the headlines.  However, absent a rate increase, it will be earnings that dominate the trades.  Economic reports will start late in the week and be highlighted by Wednesday’s PPI, Thursday’s CPI reports, and Friday’s JOLTS reports.  Should be interesting and volatile.
Economic reports will start late in the week, with Wednesday’s weekly mortgage application report.  Retail sales for September are expected to post a 0.3% gain, up slightly from last month’s 0.2% gain, as Sales ex-autos are expected to be up 0.2%.  The PPI for September is expected to be down 0.1%, as the year-over-year rate is expected to be down 0.8%.  Ex-food and energy, the PPI is expected to post a 0.1% gain for the month and be up 1.2% year-over-year.  Thursday will start with the weekly new unemployment claims report.  The September CPI is expected to be unchanged for the month, with the year-over-year change expected to be -0.2%.  The CPI ex-food and energy is expected to be up 0.2% for the month and post a 1.8% gain year-over-year.  Friday will bring the September Industrial Production report, which is expected to post a 0.1% gain, as Capacity Utilization is expected to come in flat, at 77.6%.  At 10 a.m., the August JOLTS report, which is a Fed favorite, will be released. Earning will dominate the market next week, as 113 issues, representing 24.3% of the market, are scheduled to report.  Among the highlights will be Monday’s International Business Machines (IBM) after the close, Tuesday’s Verizon (VZ), with an after-the-close report from Yahoo! (YHOO).  Wednesday will bring Boeing (BA), as Thursday has Caterpillar (CAT), Eli Lilly (LLY), McDonald’s (MAC), and an after-the-close release from Microsoft (MSFT).  Friday will close the week out with American Airlines (AAL) and State Street (SST).  The next week will continue with releases, with 172 issues, representing 31.4% of the market value, expected to release.

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