Despite some weakness early Friday morning, and then again in the afternoon, stocks resumed their march higher, this time driven by earnings from several big household names. And the U.S. dollar was again weak, which also helped stocks.
Disney (DIS) gained 4.8% following an earnings report that beat analysts’ estimates. And retailers Abercrombie & Fitch (ANF) and JC Penney Co. (JCP) rose sharply, as they, too, exceeded earnings expectations.
Every sector showed gains Friday except the financial stocks. And Consumer discretionary stocks led the day, up 1.6%.
On the economic front, consumer sentiment for November came in weaker than expected. And the U.S. trade balance widened more than expected in September.
At the close, the Dow Jones Industrial Average (DJI) was up 73 points to 10,270, the S&P 500 (SPX) gained 6 points to 1,093, and the Nasdaq (NASD) rose 19 points to 2,168.
Trading was very slow; in fact, if was the fifth lowest volume day of the year, with just 985 million shares traded on the NYSE and 592 million on the Nasdaq. But breadth was positive with advancers outnumbering decliners by 11-to-4 on the Big Board and 2-to-1 on Nasdaq.
For the week, the Dow gained 2.5%, the S&P 500 was up 2.3%, and the Nasdaq gained 2.6%.
December crude oil fell 59 cents on Friday, to $76.35 a barrel, due to lower U.S. demand. The Energy Select Sector SPDR (XLE) rose 36 cents to $57.29.
Gold gained again with the December contract up $10.10 to $1,116.70. The PHLX Gold/Silver Index (XAU) rose $3.64 to $180.99. XAU’s chart shows that it is overbought with all internal indicators close to the high points of the year, and the index trading at the top of its bull channel. Expect to see some profit-taking and a possible pullback before XAU makes new highs.
What the Markets Are Saying
As we approach the major retail selling season of the year, analysts’ focus will be on those stocks and whether or not sales will be better or worse than last year. Each year they go through this exercise, and it seems to me that every year they report that sales are not quite up to the prior year or are not meeting their estimates. I’m sure that we’ll hear the same this year from some analysts, but most will have to admit that the year is turning out to be much better than forecasts of six to nine months ago.
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A look at recent earnings shows that the retailers are doing well. And since retail sales account for up to 65% of GDP, we may see the year end with a rush to buy not only holiday goodies but retail stocks, as well.
But before we get to what could be a strong year-end rally following a stronger-than-anticipated holiday season, we will probably have to overcome a minor correction.
Our internal indicators are overbought, telling me that a minor pullback is likely. Each indicator is at the very top of its range, and at these levels, in every case this year, those indicators have defined a new top for the bull channel that began in July.
So, as the major indices hover very close to their annual highs, it’s time to again reevaluate your portfolio. Weed out the losers and nonperformers, take some trading profits, and initiate some minor defensive action like selling calls against stocks with gains or buying protective puts, etc.
Today’s Trading Landscape
Earnings to be reported include: American Dairy, American Oriental Bioengineering, Assured Guaranty, Cellcom Israel Ltd., Document Security Systems, Franklin Covey Co., FreeSeas, GigaMedia Ltd., Gilat Satellite Networks Ltd., International Royalty Corp., KHD Humboldt Wedag International Ltd., Longtop Financial Technologies Ltd., Pacific Sunwear of California, Perfect World, ReneSola Ltd., Simcere Pharmaceutical Group, SINA Corp., Sinohub, Sparton, The Allied Defense Group and WuXi Pharmatech Co. Ltd.
Economic reports due: retail sales (the consensus expects 0.9%, and 0.4% ex-autos), Empire State manufacturing survey (the consensus expects 29), and business inventories (the consensus expects -0.8%).
Late news: Lowe’s (LOW) reported Q3 earnings per share of 23 cents versus a 24-cent consensus estimate. GM reported a loss of $1.5 billion and intends to begin paying back government loans in December.
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