Wednesday was another volatile session that ended with stocks advancing for the third consecutive day. However, gains were not great, and buyers appeared motivated by a proposed stimulus from the European Central Bank (ECB) and other central banks rather than corporate earnings.
The ECB is expected to announce a stimulus package that calls for the purchase of about 50 billion euros ($58 billion) a month in bonds. The plan is expected to last for at least a year, and the hope is that it will shore up a fragile euro zone economy and increase inflation.
Other central banks acted before the ECB announcement. The Bank of Japan lowered its inflation outlook to 1% from 1.7%, and the Bank of England appears to be considering a delay in any rate increases, taking a more dovish stance than first indicated. The Bank of Canada cut its bank rate by 25 basis points to 0.75%, sending the loonie to its lowest level since 2009.
Despite uncertainties in European markets, Germany’s DAX jumped to a new all-time high, and the Stoxx Europe 600 rose 0.6%, hitting a seven-year high.
All 10 S&P sectors gained with energy up 2%. Crude oil jumped 2.7% to $47.78 a barrel. Financial, health care and technology stocks lagged the other groups, each up around just 0.2%.
Gold fell 0.1% to $1,291.60 an ounce, but silver rose 1% to $18.14 an ounce. The yield on the benchmark 10-year Treasury note rose to 1.85% from 1.81% on Tuesday.
New housing starts increased 4.4% in December from an upwardly revised figure for November.
At Wednesday’s closing bell, the Dow Jones Industrial Average was up 39 points at 17,554, the S&P 500 gained 10 points to 2,032, the Nasdaq rose 13 points to 4,667, and the Russell 2000 fell 4 points at 1,166.
The NYSE’s primary market traded about 770 million shares with total volume of 3.7 billion shares. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 1.8-to-1, and on the Nasdaq, decliners were ahead by 1.4-to-1.
The Dow Jones Utility Average scored another new high Wednesday. MACD is still flashing a strong buy signal despite the index’s push against the upper resistance line of a bull channel.
The Dow Jones Transportation Average is on a five-day bounce from the support line of a channel down. Resistance at the 50-day moving average at 8,990 has thus far held. MACD is turning up, so the transports could look forward to a quick but limited rally.
The Nasdaq is bounded by a narrow trading range from the support line at 4,600 to the 50-day moving average at 4,704. MACD is arching up slightly, and a rally of a day or two could put pressure on the resistance at 4,704.
All eyes will be on Europe this morning as the ECB attempts to put together an agreement on a QE-type relief plan. But getting so many disparate nations’ politicians together to make a major decision will be difficult.
The market has already discounted a 50 billion euro a month purchase of bonds, so anything less or a miscommunication in the technicalities of such a plan could undo Wednesday’s rally.
For now, we remain defensive until more is known about the impact of a European-style bond-buying program.
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.