Stocks Advance On Reduced Threat To Quantitative Easing

Thursday’s disappointing economic reports were well-received by the stock market. After Ben Bernanke’s testimony before the Joint Economic Committee last Wednesday, any improvement in the nation’s economy is seen as a potential threat to the quantitative easing program, which has been fueling demand for stocks. After the Bureau of Economic Analysis reported that its second estimate of first quarter GDP was adjusted downward to 2.4 percent from 2.5 percent and the weekly report on initial unemployment claims indicated an unexpected increase, investors believed that the Federal Reserve would be less likely to make any reductions to its bond-buying program.

The Dow Jones Industrial Average (DIA) picked up 21 points to finish Thursday’s trading session at 15,324 for a 0.14 percent advance. The S&P 500 (SPY) finished Thursday’s session with a 0.37 percent increase to close at 1,654.

The Nasdaq 100 (QQQ) advanced 0.57 percent to 3,011. The Russell 2000 (NYSEARCA:IWM) climbed 0.76 percent to 994.

In other major markets, oil (USO) advanced 0.45 percent to close at $33.25.

On London’s ICE Futures Europe Exchange, July futures for Brent crude oil declined by 33 cents (0.32 percent) to $102.10/bbl. (BNO).

June gold futures advanced by $21.30 (1.53 percent) to $1,412.60 per ounce (GLD).

Transports were in first gear on Thursday, with the Dow Jones Transportation Index (IYT) advancing by 0.31 percent.

Japan’s stock market had another nightmare session on Thursday, after the yield on the ten-year Japanese government bond rose to 0.935 percent. Before the end of the trading day the yen strengthened to 100.63 per dollar (FXY). A stronger yen results in less-competitive prices for Japanese exports in foreign markets. The Nikkei 225 Stock Average took a 5.10 percent nosedive to 13,589 (EWJ).

European investors exhibited a renewed appetite for risk on Thursday, as commentators struggled to explain the unexpected advance by the major European stock indices. Thursday’s stock market surge seemed unlikely, given the chaos in Japan which brought a huge stock sell-off on Thursday. Although many observers assumed that the day’s European stock market gains were related to events in the United States, Occam’s razor would result in the conclusion that – for whatever reason – European investors had an increased appetite for risk on Thursday (VGK). The Euro STOXX 50 Index finished Thursday’s trading session with a 0.45 percent advance to 2,799 – remaining above its 50-day moving average of 2,705. Its Relative Strength Index is 55.68 (FEZ).

In China, stocks made a modest retreat after a round of profit-taking on Thursday. The Shanghai Composite Index declined 0.27 percent to 2,317 (FXI). Hong Kong’s Hang Seng Index retreated by 0.31 percent to 22,484 (EWH).

Technical indicators reveal that the S&P 500 remains above its 50-day moving average of 1,598 after closing at 1,654 – as bears hope that we could be watching the formation of a head-and-shoulders pattern, which would signal a decline. Its Relative Strength Index rose from 58.73 to 60.84. Although both the MACD and the signal line remain well above the zero line (which usually suggests the likelihood of a further advance) both have assumed a downward trajectory and the MACD has crossed below the signal line, suggesting the likelihood of a decline.

For the day, nearly all sectors were positive, except for the consumer staples and energy sectors. The financial sector led the group, with a gain of 1.20 percent.

Consumer Discretionary (XLY): (unchanged)

Technology: (XLK): +0.63%

Industrials (XLI): +0.60%

Materials: (XLB): +0.29%

Energy (XLE): -0.23%

Financials: (XLF): +1.20%

Utilities (XLU): +0.26%

Health Care: (XLV): +0.72%

Consumer Staples (XLP): -0.39%

Bottom line: Bad news about the economy was once again good news for investors on Thursday, as a disappointing report on initial unemployment claims and a downward adjustment to the second estimate of first quarter GDP were seen as deterrents to any reduction of bond-buying in the Federal Reserve’s quantitative easing program.

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