The bulls shook off a two-day funk on Thursday with an impressive rally, pushing large-cap stocks up and over technical resistance last crossed back in August.
A combination of solid earnings (especially in tech) and hints of more cheap money stimulus from the European Central Bank overnight was all it took to reignite animal spirits in a big way.
In the end, the Dow Jones Industrial Average gained 320 points for a 1.9% bounce, the S&P 500 inched up 1.7% as the S&P 500 SPDRs (NYSEARCA:SPY) regained their 200-day moving average, the Nasdaq Composite gained 1.7% and the Russell 2000 finished 0.8% higher on the day. Treasury bonds were stronger along with the dollar, gold slipped slightly and crude oil gained 0.4% to close at $45.40 a barrel.
Overnight, the buying kicked off when the ECB’s policy statement noted global developments signaled downside risks for both growth and inflation (which recently fell back into negative territory).
Policymakers added that the degree of monetary policy accommodation would need to be re-examined at its December meeting.
ECB President Mario Draghi added that today’s meeting included a deep discussion on a wide range of measures, including a potential deposit rate cut (which is already in negative territory by 0.2%). If we’ve learned anything over the past few years, it’s that nothing gets the market excited like the prospect of more cheap money.
The earnings calendar was overflowing today with activity. Texas Instruments Incorporated (NASDAQ:TXN) gained 11.9% on a beat and raise. EBay Inc. (NASDAQ:EBAY) was helped by low expectations, rising 13.9%. McDonald’s Corporation (NYSE:MCD) gained 8.1% on a big third-quarter earnings per share beat thanks to better revenues and profit margins. Comp-store sales exceeded expectations in all regions. Results and guidance weren’t as bad as feared at Caterpillar (CAT), lifting shares 1.7%. And better margins, a strategic update, and corporate actions helped Dow Chemical Co (NYSE:DOW) gain 5.1%.
Semiconductors outperformed, rising 3.5% as a group. That lifted Advanced Micro Devices, Inc. (NASDAQ:AMD) another 1.9%, bringing its total gain since recommended to Edge subscribers on Oct. 16 to 10.3%. Another highlight has been the unbroken surge in Walt Disney Co. (NYSE:DIS) as hype builds for Star Wars: The Force Awakens in December. Shares are up 7.4% for subscribers so far since recommended earlier this month.
Healthcare stocks were again the underperformers, losing 0.5% as a group as biotech keeps getting battered. Specialty pharmaceutical company Valeant Pharmaceuticals Intl Inc (NYSE:VRX) lost another 7.4% to extend Wednesday’s 19% decline on concerns over its distribution model. American Express Company (NYSE:AXP) lost 5.2% after reporting weaker-than-expected results.
After the close, the tech sector went wild: Amazon.com, Inc (NASDAQ:AMZN), Alphabet Inc. (NASDAQ:GOOG, GOOGL) and Microsoft Corporation (NASDAQ:MSFT) all report top- and bottom-line beats sending equity futures up big. In after-hours trading, shares of these three were up 10%, 9% and 7% respectively.
Earnings will quiet down on Friday with Procter & Gamble Co (NYSE:PG) and American Airlines (NASDAQ:AAL) on deck.
With technical indicators looking positive, SentimenTrader noting that “dumb money” options traders are still pessimistic, central banks accommodative and earnings looking good, we’re likely on the verge of an attack on the market’s July highs as a powerful “Santa Claus” rally starts materializing.
Two potential hurdles: A surprise interest rate hike from the Federal Reserve (unlikely) or chaos surrounding the debt ceiling in early November (more likely, but still a remote possibility).
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers.
