The first day of the fourth quarter ended with modest gains despite some excellent economic numbers.
Personal income for August increased 0.5%, 0.2% better than expected, for the biggest monthly income of the year. Spending also beat forecasts, up 0.4% versus an expected 0.3%, and core personal consumption increased 0.1%, which matched expectations.
The University of Michigan consumer sentiment report increased to 68.2 versus an expected 67. And finally, construction spending increased 0.4% versus an expected decrease of 0.5%.
Only the ISM September manufacturing index failed to meet expectations. It fell to 54.4 versus economists’ estimates of 54.8.
Stocks fell on the ISM report, but late buying managed to salvage what could have been a loss for the day. The late rally included financial stocks, which ended up 1.1%. The energy sector rose 1.3% due to strong buying of crude futures.
The U.S. dollar hit a six-month low against the euro on Friday. The euro rose to $1.3784 from $1.3633 on Thursday. U.S. Treasurys rose with the benchmark 10-year note yielding 2.519%.
At the close, the Dow Jones Industrial Average rose 42 points to 10,830, the S&P 500 was up 5 points to 1,146, and the Nasdaq gained 2 points at 2,371.
The NYSE traded just under 1.1 billion shares with advancers ahead of decliners by 2.2-to-1. The Nasdaq crossed 533 million shares with advancers ahead by 1.4-to-1.
For the week, the Dow fell 0.3%, the S&P 500 was off 0.2%, and the Nasdaq fell 0.4%.
On Friday, crude oil for delivery in November rose $1.61 to $81.58 a barrel. The Energy Select Sector SPDR (NYSE: XLE) rose 75 cents to close at $56.81.
Gold jumped to another record high, closing at $1,316.10 an ounce, up $8.30. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose to 200.26, up 3.3 points.
What the Markets Are Saying
Many leading technicians and market specialists see a breakout and rally for stocks over the next three to six months as they again rose on Friday. The next target for the Dow is the psychologically important 11,000 line. For the S&P 500, the next line is at 1,157 to 1,171, which represents the bounce-back high in May following the flash crash.
The Dow Jones Transportation Average did manage to score a new high on Thursday, which negates a possible “non-confirmation” since now both the Dow Industrials and the Transports have made new highs on the current run from the September lows.
The problem is that the intraday high made by the Transports resulted in a lower close. And since the index made a new intraday high but closed lower, it also produced a “reversal day.” Volume was higher, as well, and since that is part of the equation for our Collins-Bollinger Reversal (CBR) proprietary indicator, it flashed a sell signal. And volume again was somewhat higher on the two down days than the recent up days, and that too is technically a negative.
But the last two weeks have accomplished something for the bulls. They have managed to hold above the support at S&P 500 1,130, and also have generally been able to consistently register breadth numbers in excess of 2-to-1 buyers over sellers even on low-volume days.
In April, I discussed the “sell in May and go away” strategy that, along with our other indicators, led me to a turn from a cautious bull to a bear. The “sell in May” strategy, which is actually an indicator, has worked surprisingly well over the years. Stock holders who sell in May, put the proceeds in cash, and come back to the market six months later do well.
In fact, since 1950, the Dow has produced an average gain of 7.4% from November through April, but just 0.4% from May through October. And the S&P 500 November through April has beaten the May to October period 71% of the time. The indicator is also sometimes called the “Halloween indicator” since most adherents put money back to work just after the end of October.
With just three-plus weeks to go and an election coming up, we should be attuned to the possibility of a change in trend. But, for now, it is best to leave the goblins of Halloween as an afterthought and concentrate on “what is” and not “what may be.”
See the Trade of the Day for a top gold stock to buy.
Today’s Trading Landscape
There are no significant earnings to be reported today.
Economic reports due: factory orders (the consensus expects -0.3%) and pending home sales.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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