Small-cap stocks led the market higher Tuesday with the Russell 2000 climbing 2.9%. The Nasdaq’s 1.8% gain and S&P 500’s 1.2% advance put the indices in positive territory for October after being in the red mid-month.
The big rally appeared to be the result of the Federal Reserve’s willingness to continue an easy-money policy after its bond-buying program ends this month. The FOMC will issue a statement today, which is expected to indicate that a hike in interest rates is not currently on the near-term agenda.
Higher-than-expected earnings have also boosted stock prices. Pfizer Inc. (PFE) rose 0.2% after beating analysts’ Q3 estimates. E I Du Pont De Nemours And Co (DD) gained 0.1% after it said earnings jumped 52% as a result of lower expenses. However, Twitter Inc. (TWTR) fell 9.8% on a drop in active users even though revenue more than doubled.
Lower energy prices contributed to gains in the Dow Jones Transportation Average, which hit a new high on Tuesday.
Consumer confidence rose to its highest level since 2007. Durable goods orders fell 1.3% in September versus an expected increase of 0.7%. Case-Shiller reported a 5.6% rise in home prices in August, less than the 5.7% expected. And the Richmond Fed’s manufacturing index rose to 20 in October versus an expected decline to 10.
With stocks back in demand, bond prices fell. The yield on the 10-year Treasury note rose to 2.28% from 2.26% on Monday.
At Tuesday’s close, the Dow Jones Industrial Average rose 188 points to 17,006, the S&P 500 gained 23 points at 1,985, the Nasdaq was up 78 points to 4,564, and the Russell 2000 gained 32 points at 1,149.
The NYSE’s primary market traded 797 million shares with total volume of 3.6 billion. The Nasdaq crossed 1.9 billion shares. Block trades were slightly higher than on Monday on both exchanges. On the Big Board, gainers outpaced decliners by over 5-to-1, and on the Nasdaq, advancers were ahead by 4-to-1.
Bears got pummeled as the Nasdaq gapped above its 50-day moving average at 4,481 and major resistance at the top of the trading zone at 4,485. By gapping above its 50-day, the index established its next target as the 52-week high at 4,611.
The only negative on the chart is MACD, which is overbought compared with other high points this year.
Like the Nasdaq, the Russell 2000 has broken through major barriers in just one day. It gapped through its 50-day moving average at 1,129 and closed the day just above its 200-day moving average at 1,146.
Its next targets are the near-term trendline at about 1,150 and the September high of 1,184. Here, too, the only negative on the chart is MACD, which is overbought.
Conclusion
The bulls are dancing a pre-Halloween jig despite it being the 85th anniversary of the Stock Market Crash of 1929. After Tuesday’s action, a “crash” is highly unlikely, and the chances of a run to new highs have immeasurably increased.
In addition to high levels of buying on the Nasdaq and Russell 2000, the Dow overcame its 50-day moving average, as did the S&P 500.
Someone said that the stock market will do the opposite of what everyone thinks it will to confound the majority of investors. Admittedly, stocks surprised me with their power in the past few days. However, with all indices now overbought on every internal indicator, I think it’s wise to tread lightly and wait for better prices before making a full commitment. I’m still a cautious bull.
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.
