S&P 500 posted its fourth week of gains

BY  | FROM  | 2015-10-26 10:42

It was another good week on Wall Street, as the traditional October massacre fear turned into an October Fantasy, as the market posted its fourth week of gains, and, at this point, a month-to-date 8.08% gain, which was the best October gain since the 10.77% recovery gain in 2011. The four-week run of gains was the best since the seven-week run that ended in December 2014, with a 10.0% gain. The actual fear level was quantified via the VIX, which closed the week at 14.46, down from the 23.62 close four weeks ago (September 28, 2015, and 24.50 close at end of September). Also quantifying the results was the market’s 11.11% gain from its recent August 27, 2015 low (1,867.81). Of course, not all gains are equal (or even gains, as seen in some issues). From the August 25, 2015, low, energy has rebounded 16.8%, although it remains off 13.9% year-to-date (currently being helped by “Stabil” oil). Meanwhile, health care has struggled to remain positive, with a 0.7% decline, as its early-year gains are now down to 1.1% (hit first by profit taking, then biotech concern, then drug pricing, and this week by Valeant’s accounting issue).
The cause and effect, at least on Wall Street, was seen as earnings, which (make sure you are sitting down for this shocking news) beat estimates! At this point, 170 issues, representing 42.6% of the market value, have reported, with 70% of them beating. The overall third quarter is now estimated to show a 3.6% decline over its third quarter 2014 comparison, which holds the quarterly record. The hope is that past performance DOES represent forward results, as 172 issues, which would double the 170 already reported, representing 31.4% of the market value, report next week. Just as pleasing to the Wall Street crowd was the forward guidance, which, while not universal, seemed better than expected—at least on earnings, as sales gains seem to be more difficult (did someone mention buying sales via M&A or co/cross-brand selling?). The other issue supporting prices (and indirectly earnings) are low interest rates. Next Tuesday, our stock-friendly Fed will meet for two, fun-filled days, which are expected to end Wednesday with a 2 p.m. note saying no interest rate increase now—but stay tuned folks, it could be this year, or next.
In economic news, China announced over the weekend that its third quarter GDP increased 6.9% year-over-year, beating the 6.8% that was estimated, but it posted its slowest growth since 2009 (Q1 2009 was 6.2%), as it came in below the official 7.0% target rate (which is now being referred to as “about 7%”). Factory orders in China were also released for September, coming in up 5.7%, as they missed the 6.0% estimate. A report said Saudi Arabia has a deficit budget for the first time since 2009, as oil revenue declined. Iran asked OPEC to decrease production so prices could increase (to the USD 70-80 area). Housing news was mixed, as the August FHFA Home Price Index missed expectations (up 0.3% when a 0.5% gain was expected), with the September Existing Home Sales beating estimates (an annual rate of 5.55 million units, when 5.35 million was expected). China cut its interest rate 0.25% to 4.35% for the sixth time since November 2014 and its deposit rate to 1.5% (from 1.75%), as it lowered its reserve requirements in an effect to aid growth and stability.
In M&A, investment management issue Blackstone (BX) said it would purchase of New York City’s biggest apartment complex (Stuyvesant and Peter Cooper, 11,200 units) for UDS 5.3 billion. Wafer fabrication equipment (for semiconductors) Lam Research (LRCX; up 9.2% for the week) said it would buy KLA-Tencore (KLAC; up 23.4% for the week) for USD 10.6 billion. Earnings ruled the week, as truly unexpected earnings beats made the news; Amazon.com (AMZN) added 5.0% and McDonalds (MCD) closed the week up 7.4%, along with Alphabet’s (GOOGL; formerly Google; up 3.5% for the week) intent to enter the buyback market. Drug maker and distributor Valeant Pharmaceutical (VRX) declined 40% when a report questioned its accounting practices. The shares rebounded during the day, as Bill Ackman, head of Pershing Square Capital Management, added 2 million Valeant shares to his current 19.5 million share holdings; the issue closed down 19.2% for the day and closed down 34.6% for the week (the company will hold a conference call Monday, at 8 a.m.). The report put pressure on other drug issues, as well as healthcare overall, as Endo International (ENDP) closed off 19.0% for the week. Weight control issue Weight Watchers Internal (WTW) added 132% for the week, as media celebrity Oprah Winfrey purchased a 10% equity interest—the issue remains 37% lower year-to-date. Auto news was plentiful, as French police searched the Volkswagen (VOW3; up 7.1% for the week) office for information on emission tests, as the legal issue appeared to spread. General Motor (GM; up 8.4% for the week) announced a recall over another ignition switch issue. Fiat Chrysler (FCAU) went public with 10% of Ferrari (RACE; up via an IPO 8.4% at the end of the week), giving the high-end auto maker a USD 9.8 billion market value.
For the week, the market posted a broad 2.07% gain to close at 2,075.15, its highest close since August 19, 2015 (2,079.61). It was the fourth week of gains (cumulatively 7.45%). Sentiment was up, as earnings and economic data were mostly positive, with the short-term outlook hoping for more of the same. Breadth continued to be positive, as markets moved up, with 344 issues gaining, up from last week’s 252 issues (and 440 the week before), as160 issues declined, down from last week’s 251 (and 65 the week before that). Eight issues gained at least 10% (two did last week), and another 52 issues were up at least 5% (11 last week). Twelve declined at least 10% (four last week), and another 27 issues lost at least 5% (15 last week). Eight of the ten sectors gained the same as last week (all 10 were up the week before that). Information technology did the best, up 4.61%, thanks to a Friday 3.04% gain, which was inspired by Alphabet’s (GOOGL), Amazon.com (AMZ), and Microsoft (MSFT). Industrials were next, up 3.83%, as earnings improved. Energy did the worst, off 1.00%, and is off 13.94% year-to-date, the worst sector in the index. Health care declined 0.69%, even after it rebounded 1.99% on Friday, as an already shaky sector was pledged by the Valeant Pharmaceutical (VRX) decline. Trading increased 6% from last week, and was 3% above the one-year average, as many issues posted higher trading as their earnings were released. Measurable volatility (the high-over-low price variance) continued, as prices moved up (compared to an up and down pattern), and the week ended with a 3.10% spread (it was 1.88% prior to Friday’s 2.07% gain), up from last week’s 2.15% (it was 3.37% the week before and 4.24% the week before that). The VIX continued to decline, as fear eased, closing at 14.46, down from last week’s 15.05 (and down from the prior week’s 17.08). Interest rates slightly up, as the 10-year U.S. Treasury closed at 2.09%, up from the prior week’s 2.03%, as the 30-year closed at 2.90%, a tick up from last week’s 2.89%. Oil continued in the mid-to-high USD 40s, closing lower, at USD 44.73, down from last week’s USD 47.72. Gold closed at USD 1,164.00, down from last week’s USD 1,183.10. The euro closed at 1.1018, up from the prior week’s 1.1349. The pound was at 1.5314, up from the previous week’s 1.5440, and the yen (quoted in yen-to-U.S. dollar, so higher is weaker) was at 121.46, which was down from the prior week’s 119.47. The yuan closed at 6.3542, up from last week’s 6.3529. Next week will be the market’s busiest week, as 172 issues are scheduled to report. However, earnings may lose out as the top story, as the two-day Fed meeting starts on Tuesday and ends with the 2 p.m. announcement on Wednesday.

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