Despite continuous turmoil in the Middle East and Ukraine, stocks got a boost Tuesday from strong housing data and better-than-expected corporate earnings. And, for the first time in weeks, the advance was led by small- and mid-cap stocks, with the Russell 2000 advancing 0.8% and the Nasdaq up 0.7%.
The S&P 500 rose 0.5% and is within sight of the psychologically significant 2,000 level. The Wall Street Journal attributed the gains to low interest rates and improving economic data. According to FactSet, 11 of the 14 Dow components have topped earnings estimates so far.
The National Association of Realtors (NAR) reported that existing home sales rose 2.6%, and May’s figures were revised upward. All four regions of the U.S. participated, and first-time buyers increased. It is generally accepted that an increase in home sales is a key forward indicator of an economic recovery. However, despite the recent gains, the chief economist for the NAR said that the housing market is still “underperforming” when compared with past economic recoveries.
Consumer prices rose 0.3% in June from May. This modest increase is not expected to prompt a sooner-than-expected increase in interest rates.
Chipotle Mexican Grill (CMG), Ingersoll-Rand (IR), Apache (APA), United Technologies (UTX) and Comcast (CMCSA) all reported better-than-expected earnings. Coca-Cola (KO) and McDonald’s (MCD) missed forecasts.
Gold futures fell 0.6% to settle at $1,306.30 a troy ounce, and the yield on the 10-year Treasury note fell 0.3% to 2.466%.
At Tuesday’s close, the Dow Jones Industrial Average rose 62 points to 17,114, the S&P 500 gained 10 points at 1,984, the Nasdaq rose 31 points to 4,456, and the Russell 2000 gained 9 points at 1,156. The NYSE traded 2.9 billion shares, and the Nasdaq crossed 1.7 billion shares. Advancers outpaced decliners by over 2.1-to-1 on both major exchanges.
With the S&P 500’s closing high just 1.91 points from Tuesday’s close, and the all-time high a mere 0.16 points above that, it is clear what the index’s next objective is. And the market’s internal sentiment indicators are getting stronger, adding to the likelihood that a new high above the round number of 2,000 is just around the corner.
Just two trading days ago, I was opining that the pullback was an excellent opportunity to put money to work: “The S&P 500’s July 3 closing high of 1,985.44 is a major resistance number, and the failure this week to exceed it could lead to a double-top. But Thursday’s decline failed to draw increased volume. Thus, the July price action is still bullish.
“The key support numbers are outlined on the chart of the S&P 500. Unless they are broken, any pullback, especially in the small- and mid-cap sectors of technology and biotech, should be used as bargain-hunting opportunities.”
And on Monday, I said that the high VIX readings usually signaled important lows in the market while low AAII bullish readings, a contrary indicator, confirmed that the stock market was oversold. After Tuesday’s powerful response, my gut says, “Higher prices — buy!”
Meanwhile, at ChangeWave Investing, Josh Levine said, “The daily tsunami of data and the rapid pace of change in the markets present enormous challenges which can easily overwhelm us. Rather than try to process an inhuman amount of information each day, we eventually fall back on making decisions based on what ‘feels right.'”
Josh is much more eloquent than I, but I believe that we agree that the bull has a long run ahead of it.
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.