The market shrugged off a record US trade deficit - no surprise, Americans have been ignoring the trade deficit for a long time now - and instead embraced improving consumer sentiment, a strong bond auction and dropping oil prices to stage a nice rally today.
The Dow Industrials picked up 94 points (+0.9%) to 10640, the S&P 500 gained 10 points (+0.8%) to 1231 and the Nasdaq added 21 points (+1.0%) to 2197. The Russell 2000 lagged the big boys a bit, gaining 5 points (+0.8%) to 665. The Dow Transports gained another 1.0% while the Utilities fell 1.2%. The strong Treasury auction - as foreign investors continue to feed our debt and deficit addiction - sent bond prices higher, and yields down: the 5-year to 4.48% and the 10-year to 4.56%.
Market internals turned positive midday, and volume picked up today as well. Advances/declines were 3 to 2 on each exchange, and up/down volume was also 3 to 2 on each. New highs/lows were on the negative side on the NYSE at 136/157, but the Nasdaq numbers came in at 140/74.
Winners on the day included airlines (+4.2%), housing stocks (+2.6%), HMOs (+2.3%), retailers (+2.2%), biotechs (+2.1%), REITs (+2.1%), brokers (+1.9%), chemicals (+1.7%), transports (+1.4%), internets (+1.3%) and semiconductors (+1.3%). Energy stocks remain the stocks to hate, with oil services getting whacked to the tune of 3.9%, followed by oil stocks (-3.4%), natural resources (-2.8%), natural gas (-2.5%), commodities (-1.1%) and gold & silver stocks (-1.0%).
Crude oil prices fell more than a dollar to $57.80/barrel. The dollar index surged to 92.08, up 0.6%. The spot price of gold held fairly steady near $466/ounce.
Oil and bond markets closed tomorrow for Veteran’s Day. Stock market is open.
BMB Note: Another strong day today. I think taking the housing stocks and REITs up on a move down in interest rates is a little silly - we’ve already seen the beginning of the end in the real estate thing - but these things happen. The market is obviously on positive footing in the short term - with the exception of the energy areas. The strongest areas - like banks and transports - are pretty extended here so I’d be careful there.
On a longer term view, I don’t see continued record trade deficits as good news. Oil prices will come back up, probably with the first cold snap. Keep in mind, we’ve been living mainly on oil and gasoline imported from Europe after the hurricanes, and those shipments are coming to an end. They need the oil too! Take advantage of another year-end rally as long as it lasts, because I just don’t see this as the beginning of a long-term bull. We’ve been here before, and we’re already nearing the upper part of the trading ranges going back almost two years. Maybe we peek out the top yet again, and maybe I’m wrong and we go much further than that - that would be good news. But I doubt it.