Stocks did an impressive job of holding yesterday's highs as a blah employment report only caused a few minute selloff in the premarket before everyone quickly concluded bad is once again good and the bad data would mean more quantitative easing. The marketplace is currently in a "no lose" scenario where all news is good news. A long term infrastructure plan for China was announced which helped the lagging sectors of the market such as materials, non precious metals, and industrials. While this program is set to be spread over a period of 6 years investors acted as if a slew of orders would be heading to American companies within hours. Companies such as Caterpillar (CAT) were the leaders on the day.
As for the general market, there was weakness in the NASDAQ as Intel (INTC) pre-announced poor guidance.
Remarkably we have had a pillar of transportation (Fedex) and a pillar of semiconductors - both cyclical areas of the market - pre-announce this week, but the market simply cares about central bank support at this moment. It is a new world of investing if you will, where economic slowdowns are not impacting markets but central planning policy does - as noted hedge fund manager Doug Kass has pointed out:
From my perch, investors are not being traditional in their investing; they are instead depending and are guided by their reliance on effective stimulative policy (and a global easing put).
The S&P 500 gained 0.4% while the NASDAQ ended up 0.02% due to a rally in the closing moments of the day - it had been in the red most of the day. Looking at the charts the S&P 500 continues along this multi month ascending channel and is getting nearer to the top end but still not at it. In the week ahead the question will be if the market holds Thursday's surge by moving sideways over time or comes back to back and fill.
The NASDAQ is creating a series of bull flags, now on its third one.
While a bit overbought there is nothing extreme yet.
As for today's employment report the U.S. generated a measly 96,000 jobs. The unemployment rate fell for all the wrong reasons to 8.1% as the labor force participation rate fell to lows not seen since 1981 (!) at 63.5%. With a "normal" labor force participation rate the unemployment rate would be north of 11% so all these dropouts are supressing the damage out there.
Next week is Fed week with the only question being what type of easing will be introduced. At minimum the expectation is for an increase in the length of time the Federal Reserve expects to keep rates at extraordinarily low levels - perhaps mid to latter 2015. But will they also do a new quantitative easing program, and if so what type?