Upbeat Earnings Send Stocks Higher On Friday

Stocks hit new record highs on Friday as positive earnings reports combined with another reason for quantitative easing to continue at full force.

Stocks hit new record highs on the S&P 500 and Russell 2000 indices on Friday after some key earnings reports beat expectations, while an economic report provided the Federal Reserve with another reason to delay the taper of its bond purchases.

Both Microsoft (MSFT) and Amazon (AMZN) beat earnings expectations on Friday. Amazon’s earnings beat reassured investors that the retail sector was steadily continuing to recover (XRT). The more closely-watched retailers, such as Wal-Mart (WMT) and Best Buy (BBY) will not be reporting until mid-November.

A disappointing Thompson Reuters/University of Michigan Consumer Sentiment Index for October reassured investors that the Federal Reserve would be unlikely to begin the taper of its bond purchases during the foreseeable future. The October Consumer Sentiment Index fell to 73.2 from September’s 77.5.

The Dow Jones Industrial Average (DIA) picked up 61 points to finish Friday’s trading session at 15,570 for a 0.39 percent advance. The S&P 500 (SPY) rose 0.44 percent to reach its third record-high close for the week at 1,759.77 after hitting another record intraday high (also its third for the week) of 1,179.82.

The Nasdaq 100 (QQQ) climbed 0.64 percent to finish at 3,383. The Russell 2000 (IWM) actually declined 0.05 percent to end the day at 1,118.34 (although it hit its third record-high close for the week on Thursday). The Russell 2000 did manage to hit its fourth record intraday high for the week on Friday, when it tagged 1,121.92.

In other major markets, oil (USO) jumped 0.94 percent to close at $35.32.

On London’s ICE Futures Europe Exchange, December futures for Brent crude oil advanced 13 cents (0.12 percent) to $107.12/bbl. (BNO).

December gold futures rose 20 cents (0.01 percent) to $1,350.50 per ounce (GLD).

Transports had engine trouble on Friday, with the Dow Jones Transportation Average (IYT) declining 0.33 percent.

In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Stocks sank on Friday as the yen gained unwanted strength against the dollar. A stronger yen causes Japanese exports to be less competitively priced in foreign markets. The yen strengthened to 96.94 per dollar during Friday’s trading session in Tokyo (FXY). The Nikkei 225 Stock Average took a 2.75 percent nosedive to 14,088 (EWJ).

Wednesday’s decision by the People’s Bank of China against adding funds to money markets because of soaring consumer prices, continued to send money market rates higher on Friday, causing a further stock market decline. The seven-day repurchase rate reached 5.03 percent on Friday, as a result of the 1.54 percent surge since the PBOC decision. Weak earnings reports from big companies such as Great Wall Motor and wind turbine manufacturer, Sinovel Wind Group helped fuel the bearish momentum. The Shanghai Composite Index sank 1.45 percent to close at 2,132 (FXI). Hong Kong’s Hang Seng Index dropped 0.60 percent to end the day at 22,698 (EWH).

In Europe, stocks made a slight retreat as disappointing earnings reports outnumbered the successes. European concern about the health of China’s economy was explained by the 3.04 percent share price drop for Kering SA as a result of shrinking demand for its Gucci product line in China. Why would people in the bootleg capitol of the world pay extra for the real thing? The Euro STOXX 50 Index finished Friday’s session with a 0.15 percent decline to 3,034 – remaining above its 50-day moving average of 2,890. Its Relative Strength Index is 66.42 (FEZ).

Technical indicators revealed that the S&P 500 climbed further above its 50-day moving average of 1,687 after finishing Friday’s session with a 0.44 percent advance to 1,759.77. Its Relative Strength Index rose from 65.79 to 67.64. The MACD continues to climb further above the signal line, suggesting the likelihood of a continued advance.

For Friday, most sectors were solidly in positive territory. The utilities sector led the group with a 1.06 percent advance.

Consumer Discretionary (XLY): +0.75%

Technology: (XLK): +0.51%

Industrials (XLI): +0.52%

Materials: (XLB): +0.29%%

Energy (XLE): +0.60%

Financials: (XLF): +0.43%

Utilities (XLU): +1.06%

Health Care: (XLV): +0.13%

Consumer Staples (XLP): +0.24%

Bottom line: Another batch of upbeat earnings reports combined with another reason to expect that the Federal Reserve will continue its quantitative easing program at full force, after the Thompson Reuters/University of Michigan Consumer Sentiment Index sank during October.

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