U.S. stock markets rose sharply on Thursday, driving the major indices from losses to gains for the year. The Dow industrials, S&P 500 and Nasdaq each jumped 1.8%, and the Russell 2000 rose 1.7%.
The rally began in Europe with the Stoxx Europe 600 forging ahead 2.8% due to expectations that new stimulus plans are in the works from the European Central Bank (ECB). A statement from the ECB is expected next week.
In the U.S., a statement from the president of the Chicago Federal Reserve Bank, Charles Evans, also spurred buyers into action. Evans said the Fed’s target inflation rate may not be hit until 2018, and that he does not advise raising interest rates till 2016. However, statements like this are often floated by the Fed in order to have an impact on the market without actually taking action.
Other markets didn’t seem to reflect an anticipation of continued lower rates The U.S. dollar rose versus the euro and yen, and the Treasury’s benchmark 10-year note fell, with the yield increasing to 2.02%.
Crude oil gained 0.3% to $48.79 a barrel. February gold futures fell 0.2% to $1,208.50 an ounce.
The Labor Department reported that initial jobless claims fell by 4,000 to 294,000 in December. The unemployment rate will be reported today and is expected to fall to 5.7%, but there may be some significant adjustments to prior unemployment numbers, according to CNBC’s Steve Liesman.
At Thursday’s close, the Dow Jones Industrial Average rose 323 points to 17,908, the S&P 500 gained 36 points at 2,062, the Nasdaq jumped 86 points to 4,736, and the Russell 2000 was up 20 points to 1,196.
Gainers outpaced decliners on the NYSE by 3.3-to-1, and on the Nasdaq, advancers were ahead by 2.9-to-1. The NYSE’s primary market traded 848 million shares, slightly higher than the average since Jan. 2, with total volume of 3.8 billion shares. The Nasdaq crossed 1.9 billion shares.
The sharp rally in the S&P 500 took back all of the losses from the past four sessions plus several more. It jumped up through the resistance line at 2,020 and the 50-day moving average at 2,044, as well as the minor resistance of its 20-day moving average just above that level.
In the process, it reestablished its sideways trend from what appeared to be a possible disaster in the making. Its MACD indicator is curling up but has not yet issued a new signal.
Conclusion
In order to move from a clear near-term downtrend and a threatened intermediate decline, the S&P 500 had to close above its 50-day moving average and pose a credible threat to the December high at 2,079.47 before tackling the all-time high at 2,093.55.
On Thursday, it almost performed the “miracle” of a total reversal (sure wish I hadn’t used that word in yesterday’s Daily Market Outlook). However, in terms of strength, other than pure points, the advance was sorely lacking. Breadth at 3.3-to-1 and volume of just 848 million shares on the NYSE is not impressive. It may be slightly higher than the volume since Jan. 2, but it is lacking compared to most genuine breakouts.
With lower-than-expected breadth and volume, the rally seemed more like short covering and institutional brokers attempting to make up for lost ground in 2014 by adding the big, uncontroversial names to their portfolios.
Some I assume will say, “Sour grapes, Sam, you’re just miffed because you missed the rally.” I must admit I wish I had jumped aboard the market three days ago. However, I lack the conviction to fully recommend stocks when the technical picture is not complete.
If I’m wrong, I’ll have plenty of time to make up for it. And I suppose that buying stocks at such lofty price-to-earnings ratios is just not my idea of value. The Russell 2000 is trading at over 61 times trailing 12-month earnings, and the S&P 500 is at 19.37. Estimates for this year put the forward P/E ratio at 18.55 for the Russell 2000 and 16.5 for the S&P 500. Corporations are going to have to make some big earnings gains quickly in order to justify Thursday’s big move.
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.
