Market Surges to 2-Month High—Why?

For reasons known only to market participants, the S&P 500 roared past beyond the two-month barrier of 1220, closing today at 1254 and approaching slight resistance around 1260.  CAT started this week off with upbeat earnings and a positive outlook.  European principals continue to leave the markets hanging with tantalizing hints of a full-detailed rescue package for the sovereign debt problems of Greece and the other PIIGS. However, there remains little clarity or enthusiasm.  It will likely be Wednesday before we hear something more definitive from the EU summit participants. The situation remains critical to the global economy. Here are the market stats.

Market Stats. Our own economy didn’t provide a lot of positive new information last week.  Instead we got a dreadful reading from Empire Manufacturing Index—flat industrial production.  Housing starts improved, but fewer permits were issued, and sales of existing homes were relatively unchanged along with mammoth numbers of new foreclosure proceedings.  PPI was well above expectations, but CPI was flat. The Leading Economic Index was a bit worse than expected as were initial jobless claims.
Corporate earnings produced some strange behavior. Citibank (C) had decent results and was rewarded with a 7% rally, while Wells Fargo (WFC) disappointed and was punished with an 8% drop. Goldman Sachs (GS) reported its second quarterly loss ever, and although it wasn’t clear exactly what Bank of America (BAC) reported, the financial sector rallied for the week. Both of the latter stocks were oddly up and sharply lead the financial sector to the second best sector performance of the week, up about +2%. A number of industrials were upbeat about near term prospects resulting in a good week.  Utilities actually led last week’s surge, up +2%.  Despite good earnings and a positive outlook, AAPL missed earnings estimates due to a late iPhone release. Technology and materials came in dead last for the week. Looking Forward. A couple fairly major acquisitions (ORCL buying RNOW and CI buying HS) apparently caused market traders to ignore Europe’s indecisive behavior as well as the aforementioned economic and earnings disappointments to send the market to two-month highs.  We remain cautious and would agree with our fellow blogger at Sabrient, Daniel Sckolnik, in suggesting a hedge around the VIX or the ETF VXX.  For those who view the market breakout as positive, I have included four stocks to consider below. PLEASE NOTE: Sabrient’s forward-looking Sectorcast rankings remain unavailable, as we are in the process of converting our sectors to the new TRBC (Thompson Reuters Business Classification). We apologize for the inconvenience.

4 Stock Ideas for this Market This week, I started with the Undervalued Large Cap Growth preset search in MyStockFinder. I also included Buys (in addition to Strong Buys) and mid-caps. Analyst Revisions were given maximum importance and Fundamentals were up-weighted slightly. Here are four stock ideas that look intriguing:

JAZZ Pharmaceuticals, Inc. (JAZZ) – Biotechnology/Healthcare
Western Refining Inc. (WNR) – Energy
Humana Inc. (HUM) – Healthcare/Financials
Synnex Corp (SNX) –Technology