Fundamentals, US Markets

Stocks End Volatile Session Higher on Fundamental Improvements

U.S. Session Key Developments

•    Commodities Higher on Greenback Weakness
•    Financial Concern Continues to Linger

US equities saw considerable volatility, swinging lower following gains of approximately 1.5% before eventually closing slightly higher. The bounce today focused on several factors including fundamental data in construction and pending home sales gains, while the ISM reported expansion accelerating in US manufacturing at the fastest pace since early 2006. The index has gained for three consecutive months, helping to lift sentiment that recovery is intact despite governments beginning to scale back stimulus measures. Also lifting hope was profit of nearly $1B by automaker Ford, which had been expected to post a loss. On the other end of the spectrum, concerns in the financial sector lingered as small/medium-sized business lender CIT filed for chapter 11 bankruptcy protection following failure to reach an agreement with bondholders. The action is likely to result in a loss for the government’s TARP investment, while shareholders won’t see much return in the aftermath. Other issues affecting the sector include upcoming plans by the US government to prevent future crisis, which will likely include further regulation and capital requirements, actions likely to limit return on equity as more funds are held with minimal return. Elsewhere, banks are being dismantled in Europe as ING’s divestment from insurance is likely to be followed by similar action in the U.K. for RBS, Lloyds and Northern Rock. Ultimately, markets have corrected a fair bit off the recent peaks with the S&P500 remaining more than five percent lower. Sidelined liquidity has in previous contractions quickly filled opportunity voids and should fundamental data continue to remain positive, the present situation is likely to see a similar outcome. At the same time, volatility remains near 30 on the VIX

DJIA 30                      9,789.44                   +76.71               +0.79%
The Dow ended the session higher by nearly one percent following initial upside in the morning of nearly 1.5%. Ultimately fundamental data helped the main index bounce off its 50-day moving average support, if only temporary, as housing sector indicators came in strong along with US manufacturing expansion accelerating in October. Ultimately, the big moves of the index were made by moderate gains of less than two percent in United Technologies and P & G, two global firms likely to benefit from further weakness in the dollar. Despite most stocks rising, activity in the following days will prove key as rate decisions from Central bankers as well as a slew of economic data is likely to drive trading.

S&P 500                    1042.88                   +6.69                 +0.65%
Trading in the broad 500 member S&P index led to a small gain of just over half of one percent as more than 70% of stocks advanced. Consumer Goods and Basic Materials posted advances of more than 1% as acceleration in manufacturing growth, along with higher commodities, helped boost valuations. Automaker Ford posted the largest move, up more than 8% following unexpected profit in the third quarter of nearly $1 billion. Gains in some of the biggest firms traded proved minimal as ExxonMobil and Microsoft rose slightly. Ultimately, the S&P500 remains below its 50-day moving average, and a lower low set today is likely to keep investors on edge about buying just yet.

NASDAQ                         2,049.20                    +4.09             +0.20%
The tech-heavy NASDAQ gained slightly following a volatile session with a range of nearly fifty points. The index has seen a sharp rally since the March lows and currently outperforms its nearest counterpart, the S&P500, with a year-to-date gain of 30% compared to 15.46% for the S&P500. Much of this is attributed to the relative safety of technology firms’ balance sheets, which often contain little to no debt load and large amounts of cash ready for possible acquisitions or difficulties. Speculation that pent up demand, coupled with the release of Microsoft’s Windows 7 operating system, is also keeping hope alive in the outperforming index. Despite sentiment in the long-run appearing strong, near-term weakness continues as four of the ten-largest companies listed closed lower.

Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com