Fundamentals, US Markets

Stocks End Mixed Session Higher to Close Week Up More than Three Percent

U.S. Session Key Developments

•    Commodities Lower on NFP Release
•    Upgrades Buoy Stocks Temporarily

US equities suffered initially on fundamental data and lower commodities before eventually closing with a minor gain. Stocks have seen a considerable rally this week with the Dow up more than three percent along with similar moves in the S&P500 and NASDAQ composite. Ultimately, sidelined liquidity has indeed filled the void created by the recent weeks’ sell-off and upgrades today to major firms including General Electric, Amazon and Home Depot, has lifted sentiment. Data today showed the unemployment rate rising to the highest level in 26 years to 10.2%, while monthly job losses in October came in worse-than-expected at 190,000. Some commentators may quickly dismiss this given an upward revision in September’s figure to -219,000 from -263,000, but the fact remains that conditions have not improved significantly. The larger aspect of this is that unemployment has now surged to just a hair away from the 10.3% “adverse-scenario for 2010” which the government envisioned in its late-April stress tests on the major US banks. Ultimately, this suggests the program was indeed too lenient and further capital raising may be needed should housing continue to show emerging weakness while layoffs and credit losses continue to climb. Another indicator of the trouble, consumer credit posted a decline of $14.8 billion in September, the 11th drop in the last 12 months. It remains far from certain whether US equities will sustain the strength seen this week and whether a new high will be reached. Growth is without doubt certain through the second half of the year, but the picture is not as rosy as the rally indicates, and stocks may see trouble should risk appetite wane. At the same time, any resurgence in rumor such as a second stimulus, which the government can ill afford, would lead to a sharp slide in the greenback and possibly further inflate equities. Concern and caution should be undertaken on entering at this pivotal moment.

DJIA 30                      10,023.42                   +17.46               +0.17%
The Dow ended the session slightly higher while underperforming its peers. Ultimately, the index has rallied more than three percent this week and made a clear climb off its 50-day moving average support line. Major movers included insurer Travelers up more than Two percent as Goldman Sachs raised its rating on the firm to “buy.” Similarly, GE rallied 6.24% as analysts upgraded the stock. It remains unclear whether the recent rally is built on a solid foundation or whether sidelined liquidity is merely stepping in on every possible dip, no matter the size, as it has since July.

S&P 500                    1069.30                   +2.67                 +0.25%
Trading in the broader S&P500 index led to a small gain as the index returned back above its 50-day moving average this week. Seven of ten sectors closed higher with minimal gains while Financials, Oil & Gas and Utilities, declined slightly. Major market movers included GE, also a Dow component, as analysts upgraded the stock. Other winners included Amazon and Lowes, up more than four percent, while greater than seven percent gains were noted in graphics card maker Nvidia and coffee chain Starbucks. Ultimately fueled by upgrades, despite the weakness of today’s jobs data, it remains to be seen whether stocks continue to move higher.

NASDAQ                         2,112.44                    +7.12             +0.34%
The tech-heavy NASDAQ ended the session with the highest move of the five majors while having underperformed earlier in the week. Six of ten sectors advanced while more stocks fell than those that rose. Leaders today included a 4.63% rise in Amazon as well as greater than seven percent gains in Starbucks and Nvidia. Of the ten largest firms, only three fell with losses under one percent, reflecting the overall confidence in stock markets today. Ultimately, the technology sector remains the best equipped to handle possible weakness in the economy as many of the firms are well capitalized and have significant global presence to limit US exposure.

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