Is Bad News Good News For The Market?

A downbeat report on industrial production dispelled fears that the Fed would taper its bond-buying in December, sending the stock market higher.

The stock market soared on Friday as investors felt relieved that the Fed would not begin tapering its bond purchases earlier than March. A disappointing report on industrial production for October provided more evidence that the economic recovery is progressing slower than expected. Although economists were anticipating a 0.1 percent increase in industrial production, the report indicated a 0.1 percent decline. As a result, widespread commentary focused on the fact that the Fed would be in no hurry to begin the taper.

The Dow Jones Industrial Average (DIA) picked up 85 points to finish Friday’s trading session at a new record-high close of 15,961.70 for a 0.54 percent advance. The Dow also hit a new record intraday high of 15,962.98. The S&P 500 (SPY) climbed 0.42 percent to close at a new record high of 1,798.18 after hitting a new record intraday high of 1798.22.

The Nasdaq 100 (QQQ) rose 0.22 percent to finish at 3,422. The Russell 2000 (IWM) advanced 0.43 percent to 1,116.

In other major markets, oil (USO) declined 0.15 percent to close at $33.88.

On London’s ICE Futures Europe Exchange, January futures for Brent crude oil rose 14 cents (0.13 percent) to $108.42/bbl. (BNO).

December gold futures advanced $3.30 (0.26 percent) to $1,289.60 per ounce (GLD).

Transports had the jet stream at their backs on Friday, with the Dow Jones Transportation Average (IYT) accelerating 0.70 percent.

In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Japanese stocks soared on Friday as the yen weakened as far as 100.30 per dollar during the day’s trading day’s trading session. Just before the closing bell in Tokyo, the exchange rate for the yen was 100.09 per dollar, allowing the currency to maintain its status as the yenny (FXY). A weaker yen causes Japanese exports to be less competitively priced in foreign markets. Shares for Panasonic soared 2.81 percent in Tokyo. The Nikkei 225 Stock Average jumped 1.95 percent to 15,165. It was the first time that the Nikkei closed above 15,000 since May 22 (EWJ).

In China, stocks skyrocketed after a document was leaked by way of online social media, purporting to reveal specifics about reform plans which were made during the Communist Party meeting over the weekend. The nation’s stock indices sank earlier in the week after the government failed to disclose any specifics on those plans. The document, which was allegedly a scanned copy of a policy statement bearing handwritten notes, discussed plans to limit state monopolies and to allow private investors to buy stock in state-owned enterprises.

The Shanghai Composite Index vaulted 1.68 percent to 2,135 (FXI). Hong Kong’s Hang Seng Index surged 1.69 percent to end the day at 23,032 (EWH).

Stocks nudged upward in Europe as a result of mixed earnings reports. A strong report from French telecom and media giant, Vivendi, led the group with a 2.9 percent gain. The Euro STOXX 50 Index finished Friday’s session with a 0.03 percent advance to 3,054 – rising further above its 50-day moving average of 2,965. Its Relative Strength Index is 58.30 (FEZ).

Technical indicators revealed that the S&P 500 climbed further above its 50-day moving average of 1,723 after climbing 0.42 percent to finish Friday’s session at an all-time high of 1,798.18. Its Relative Strength Index rose from 66.23 to 68.14. The MACD continued to rise above the signal line, which would suggest a further advance in the immediate future.

On Friday, all sectors finished in positive territory. The materials sector led the group, with a 0.64 percent advance.

Consumer Discretionary (XLY): +0.34%

Technology: (XLK): +0.22%

Industrials (XLI): +0.34%

Materials: (XLB): +0.64%

Energy (XLE): +0.55%

Financials: (XLF): +0.48%

Utilities (XLU): +0.57%

Health Care: (XLV): +0.58%

Consumer Staples (XLP): +0.12%

Bottom line: Friday’s stock market advance demonstrated investors’ relief that the Fed would be in no hurry to taper its bond purchases after the October report on industrial production failed to meet expectations.

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