On Tuesday, a pre-opening Fed report showing that manufacturing activity in April in the Chicago Fed region missed estimates caused a lower opening with many stocks gapping down. However, buyers stepped in and a rebound ended the session with modest gains.
The rebound marked the fifth consecutive month of gains for the Dow and the sixth straight for the S&P 500 and Nasdaq. In April, the Dow and S&P 500 gained 1.8%, and the Nasdaq was up 1.9%.
The Conference Board’s Consumer Confidence Index increased to 68.1 from 59.7 in March, which exceeded expectations of 61. And finally, the Employment Cost Index increased 0.3% in Q1 2013, down slightly from 0.4% growth in Q4 2012.
At Tuesday’s close, the Dow Jones Industrial Average was up 21 points at 14,840, the S&P 500 rose 4 points to 1,598, and the Nasdaq jumped 22 points to 3,329. The NYSE traded 889 million shares and the Nasdaq crossed 541 million. On the Big Board, advancers led decliners by 2-to-1, and on the Nasdaq, advancers were ahead by 1.5-to-1.
The S&P 500 confirmed last month’s breakout as “the real deal” by exceeding the old closing high of 1,565 and making a new intraday and closing high above 1,597. Traders will be pleased to note that the S&P 500 closed at its highs of the day, traditionally a strong signal of more highs to come.
Until this week, the Nasdaq’s price action was labored with sharply lower lows and a questionable high in early April. But Tuesday’s enthusiastic break with a close at the high of the day (like the S&P 500) should satisfy any squeamish investor who doubts the genuineness of the advance.
Conclusion: This week, the major U.S. stock indices rose to new highs, which should settle the question as to the future direction of the stock market.
Digging a bit deeper into the month’s triumph reveals several interesting technical factors. First, it was a month when the lagging, defensive sectors like telecommunications, utilities and consumer staples showed remarkable strength, but the normally aggressive sectors like industrials and energy lost ground. And while the Dow industrials gained 1.8%, the transports lost 1.2%. Also, small caps underperformed midcaps (Russell 2000 down 0.4% versus Nasdaq up 1.9%).
Therefore, compared to earlier in the year, there has been a healthy round of group rotation, which is the hallmark of a strong bull market. Once the “sell in May” crowd exits the market, I look for stocks to continue the march north.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.