Stocks Advance Despite Signals Of More Tapering

Stocks soared on Tuesday, despite a better-than-expected report on retail sales and pro-taper speeches by two FOMC members.
 
It was only a few months ago when news reports such as those we received on Tuesday would have sent stocks crashing. The Commerce Department’s Census Bureau reported that on a monthly basis, retail sales increased by 0.2 percent in December, beating economists’ expectations of a 0.1 percent increase. Excluding automobiles, retail sales increased by 0.7 percent in December, despite economists’ expectations of a less-significant, 0.4 percent increase.
 
Strong retail sales used to be scary news because it would be seen as encouragement for the FOMC to initiate the cutbacks to the Federal Reserve’s monthly bond purchases. Not only did the stock market fail to collapse after the upbeat economic data, but it also survived some pro-tapering speeches by two voting members of the FOMC:  Dallas FedHead Richard Fisher and Philly FedHead Charles Plosser. Instead of a mass panic attack, we saw a significant stock market advance on Tuesday.
 
The Dow Jones Industrial Average (DIA) picked up 115 points to finish Tuesday’s trading session at 16,373 for a 0.71 percent gain. The S&P 500 (SPY) climbed 1.08 percent to close at 1,838.
 
The Nasdaq 100 (QQQ) jumped 1.93 percent to finish at 3,580. The Russell 2000 (IWM) surged 1.34 percent to end the day at 1,163.
 
In other major markets, oil (USO) rose 0.70 percent to close at $33.04.
 
On London’s ICE Futures Europe Exchange, March futures for Brent crude oil declined 72 cents (0.68 percent) to $105.25/bbl. (BNO).
 
February gold futures declined $1.10 (0.09 percent) to $1,244.30 per ounce (GLD).
 
Transports were climbing above the clouds on Tuesday, as the Dow Jones Transportation Average rose 1.28 percent (IYT).
 
Japanese stocks fell as the stock market reopened on Tuesday after the holiday on Monday, giving investors an opportunity to react to the strengthening of the yen. During the final 90 minutes of Tuesday’s trading session in Tokyo, the yen strengthened to 103.25 per dollar. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average sank 3.08 percent to 15,422 (EWJ).
 
Stocks advanced in mainland China as the result of a government mandate that the nation’s military must buy only domestically-manufactured automobiles. The Shanghai Composite Index climbed 0.86 percent to 2,026 (FXI). Hong Kong’s Hang Seng Index declined 0.43 percent to 22,791 (EWH).
 
In Europe, the pharmaceutical sector led a stock market advance after AstraZeneca, Sanofi and Shire provided strong earnings guidance. The Euro STOXX 50 Index advanced 0.24 percent to 3,119 on Tuesday – climbing further above its 50-day moving average of 3,044. Its Relative Strength Index is 61.12 (FEZ).
 
Technical indicators revealed that the S&P 500 climbed further above its 50-day moving average of 1,802 after climbing 1.08 percent to finish Tuesday’s trading session at 1,838. Its Relative Strength Index climbed from 50.13 to 58.39. The MACD is dropping below the signal line, which would suggest that the S&P could resume its decline during the immediate future.

On Tuesday, all sectors finished solidly in positive territory.  The technology sector made the biggest advance, climbing 1.69 percent.+
Consumer Discretionary (XLY):  +0.86%+
 
Technology:  (XLK):  +1.69%
 
Industrials (XLI):  +1.05%
 
Materials: (XLB):  +1.40%
 
Energy (XLE):  +1.30%
 
Financials: (XLF):  +0.83%
 
Utilities (XLU):  +0.13%
 
Health Care: (XLV):  +1.26%
 
Consumer Staples (XLP):  +0.52%
 
Bottom line:  Tuesday’s significant stock market surge demonstrated that the things which used to scare investors about cutbacks to the Fed’s bond purchases are no longer feared.  The major stock market indices made big advances on Tuesday, despite a better-than-expected report on retail sales as well as two pro-tapering speeches by two voting FOMC members.

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