Consumer Sentiment Rocks Stocks

Stocks finished the week Friday with a bang after the Thompson Reuters/University of Michigan Consumer Sentiment Index reached 83.7 in May – its highest level since July of 2007 – before the financial crisis. Because the American economy is 70 percent consumer-driven, surveys of consumer sentiment and consumer confidence are closely watched as forward-looking indicators as to where the economy is headed.

Another better-than-expected economic report came from The Conference Board, which reported that its Leading Economic Index (LEI) jumped 0.6 percent in April to 95.0. Economists were expecting a less-significant increase of 0.2 percent.

The Dow Jones Industrial Average (DIA) gained 121 points to finish Friday’s trading session with a new record-high close of 15,354 for a 0.80 percent advance. The Dow reached a new record intraday high of 15,357.40. The S&P 500 (SPY) finished the week at a record high level of 1,667.47 for a gain of 1.03 percent. The big question at this point is whether the S&P 500 will reach 1,700.

The Nasdaq 100 (QQQ) jumped 0.99 percent to 3,028. The Russell 2000 (IWM) surged 1.1 percent to a record-high close of 996.28 after hitting an intraday record high of 996.47.

In other major markets, oil (USO) advanced by exactly one percent to close at $34.21.

On London’s ICE Futures Europe Exchange, July futures for Brent crude oil advanced by 92 cents (0.89 percent) to $104.70/bbl. (BNO).

June gold futures declined by $29.10 (2.10 percent) to $1,357.80 per ounce (GLD).

Transports “floored it” on Friday, with the Dow Jones Transportation Index (IYT) jumping 1.20 percent.

European stocks capped the week with more gains following a report from the European Automobile Manufacturers’ Association (ACEA) that new car registrations surged 1.7 percent in April, marking the first monthly advance since September of 2011 (VGK). The Euro STOXX 50 Index finished Friday’s trading session with a 0.40 percent advance to 2,817 – remaining above its 50-day moving average of 2,685 (FEZ).

In Japan, stocks advanced after Prime Minister Shinzo Abe fired what is referred to as the “third arrow” of his “Abenomics” program. The plan now involves doubling farm exports and tripling infrastructure exports by 2020. The government will also increase private sector investment by ten percent to 70 trillion yen. The Nikkei 225 Stock Average climbed 0.67 percent to 15,138 (EWJ).

In China, stocks continued to advance after the government instituted reforms in accordance with Premier Li Keqiang’s efforts to cut administrative red tape. Rumors of more extensive reforms – particularly a possible rollback of restrictions on real estate transactions – helped feed investor enthusiasm. The Shanghai Composite Index jumped 1.38 percent to 2,282 (FXI). The Hong Kong Stock Exchange was closed on Friday for a public holiday (EWH).

Technical indicators reveal that the S&P 500 remains far above its 50-day moving average of 1,581 after closing at 1,667.47 – as bears continue to hope that we are watching the formation of a head-and-shoulders pattern, which would signal a decline. Its Relative Strength Index rose from 68.63 to 72.24 – well above the threshold level of 70, which most investors consider an “overbought” signal. Both the MACD and the signal line continue soaring above the zero line, suggesting the likelihood of a further advance.

For the day Friday, all sectors finished in solidly positive territory, with most sectors advancing beyond one percent. Friday’s laggards were the healthcare and consumer staples sectors.

Consumer Discretionary (XLY): +0.96%

Technology: (XLK): +1.00%

Industrials (XLI): +1.52%

Materials: (XLB): +1.08%

Energy (XLE): +1.67%

Financials: (XLF): +1.32%

Utilities (XLU): +0.95%

Health Care: (XLV): +0.57%

Consumer Staples (XLP): +0.15%

Bottom line: Better-than-expected readings for the Consumer Sentiment Index and the Leading Economic Index were all investors needed to send stocks to new record-breaking highs on Friday.

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