Bad News Is Still Good News For Stocks

Stocks surged on Tuesday after September’s downbeat non-farm payrolls report signaled that the Fed’s bond purchases would continue at full force.

Stocks reached new highs on Tuesday, as the disappointing non-farm payrolls report for September affirmed expectations that the Federal Reserve would delay the taper of its bond purchases. Investors demonstrated delight over the fact that the Fed’s liquidity pump would continue to fuel stock prices. The Bureau of Labor Statistics reported that only 148,000 new, non-farm payroll jobs were added in September and that the unemployment rate dipped from 7.3 percent to 7.2 percent. Economists were expecting to see that 180,000 new jobs were added.

One telling sign that the stock market may be reaching a “top” appeared on Tuesday, as many high-volatility, “momentum” stocks took hard falls, signaling increased risk-aversion among investors. The Technology Select Sector SPDR ETF (XLK) made a slight, 0.03 percent decline on a day when all other sectors – including the homebuilding sector – made significant advances. The SPDR S&P Homebuilders ETF (XHB) jumped 2.36 percent on Tuesday.

The Dow Jones Industrial Average (DIA) gained 75 points to finish Tuesday’s trading session at 15,467 for a 0.49 percent advance. The S&P 500 (SPY) climbed 0.57 percent to reach another record-high close at 1,754.67 after hitting a new record intraday high of 1,759.33.

The Nasdaq 100 (QQQ) advanced 0.17 percent to finish at 3,366. The Russell 2000 (IWM) climbed 0.28 percent to reach a record-high close at 1,112.48 after hitting a record intraday high of 1,121.53.

In other major markets, oil (USO) sank 1.47 percent to close at $35.41.

On London’s ICE Futures Europe Exchange, December futures for Brent crude oil advanced 34 cents (0.31 percent) to $109.98/bbl. (BNO).

December gold futures advanced $24.30 (1.85 percent) to $1,340.10 per ounce (GLD).

Transports were flying above the clouds on Tuesday, with the Dow Jones Transportation Average (IYT) climbing 0.84 percent.

In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Stocks made modest gains as the yen weakened only slightly against the dollar. A weaker yen causes Japanese exports to be more competitively priced in foreign markets. The yen fell to 98.35 per dollar during Tuesday’s trading session in Tokyo (FXY). The Nikkei 225 Stock Average advanced 0.13 percent to 14,713 (NYSEARCA:EWJ).

In China, stocks declined after it became clear that the government would need to introduce additional measures to restrain housing prices. After the National Bureau of Statistics reported an ongoing surge in the prices of residential buildings, share prices for real estate development companies sank. The Shanghai Composite Index fell 0.83 percent to close at 2,210 (FXI). Hong Kong’s Hang Seng Index declined 0.52 percent to end the day at 23,315 (EWH).

In Europe, another batch of better-than-expected earnings reports sparked a nice advance, led by Novartis AG, (NVS), which skyrocketed 2.83 percent in Frankfurt.

The Euro STOXX 50 Index finished Tuesday’s session with a 0.57 percent advance to 3,045 – climbing further above its 50-day moving average of 2,879. Its Relative Strength Index is 73.19. Because most investors consider an RSI above 70 as an “overbought” signal, we could see another pullback (FEZ).

Technical indicators revealed that the S&P 500 climbed further above its 50-day moving average of 1,682 after finishing Tuesday’s session with a 0.57 percent advance to 1,754.67. Its Relative Strength Index rose from 65.92 to 68.16. The MACD climbed further above the signal line, suggesting the likelihood of a continued advance.

For Tuesday, all sectors were solidly in positive territory, except for the technology sector, which took a 0.03 percent dip.

Consumer Discretionary (XLY): +0.68%

Technology: (XLK): -0.03%

Industrials (XLI): +0.67%

Materials: (XLB): +1.45%

Energy (XLE): +0.55%

Financials: (XLF): +0.19%

Utilities (XLU): +1.28%

Health Care: (XLV): +0.94%

Consumer Staples (XLP): +1.26%

Bottom line: The disappointing September non-farm payrolls report sent stocks climbing higher on Tuesday, as investors felt encouraged that the Federal Reserve would again postpone the anticipated taper of its bond purchases.

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