Stocks Advance On Downbeat Economic News, Hopes For Taper Delay

Friday’s stock market activity raised the question of how long the “bad economic news is good news for stocks” era will continue. The FOMC will be holding its monetary policy meeting on Wednesday and Thursday to vote on whether to proceed with the “Septaper”.

The preliminary Thomson Reuters /University of Michigan Consumer Sentiment Index for September dropped to 76.8 from August’s final reading of 82.1. Economists were expecting a reading of 82.0.

The Commerce Department’s Census Bureau reported that retail sales rose by only 0.2 percent during August, despite economists’ expectations for a 0.5 percent increase. The disappointing economic reports raised hopes that the Federal Reserve would be reluctant to cut back on its $85 billion monthly bond purchases at this time, reducing risk aversion among investors.

The Dow Jones Industrial Average (DIA) gained 75 points to finish Friday’s trading session at 15,376 for a 0.49 percent advance. The S&P 500 (SPY) climbed 0.27 percent to close at 1,687.

The Nasdaq 100 (QQQ) rose 0.09 percent to finish at 3,178. The Russell 2000 (IWM) advanced 0.52 percent to end the day at 1,053.

In other major markets, oil (USO) dipped 0.06 percent to close at $38.84.

On London’s ICE Futures Europe Exchange, November futures for Brent crude oil rose 24 cents (0.22 percent) to $111.77/bbl. (BNO).

December gold futures managed to recover $14 in the afternoon, so that they declined by only $6.50 (0.49 percent) to $1,324.10 per ounce (GLD).

Transports were stuck in first gear on Friday, as the Dow Jones Transportation Average (IYT) advanced 0.10 percent.

In Japan, stocks made a modest advance as the yen weakened slightly to 99.96 per dollar just before Friday’s closing bell in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average rose 0.12 percent to 14,404 (EWJ).

China had a tough day after a number of developments combined to push stocks into the red. The nation’s overproduction of copper sent Jiangxi Copper – the nation’s foremost copper producer – on a well-deserved 1.4 percent nosedive during Friday’s session. China has distorted the copper market with excess supply. The nation’s entire shipping sector sank after UBS cut its rating on China Shipping Development Company from “buy’ to “neutral”, causing the stock to drop more than 5 percent. The Shanghai Composite Index dropped 0.86 percent to 2,236 (FXI). Hong Kong’s Hang Seng Index retreated 0.17 percent to end the session at 22,915 (EWH).

In Europe, stocks made a modest advance following reports on a number of mergers and stock ratings upgrades (NYSEARVA:VGK). Fresenius Helios has now become Europe’s largest private hospital company after purchasing 43 hospitals from Rhoen-Klinikum. Vodafone announced that it has purchased enough shares in Kabel Deutschland to complete its takeover of the company. Munich Reinsurance saw its share price soar higher than two percent after JPMorgan upgraded the company from “neutral” to “overweight”. The people at Goldman Sachs finally got used to the funny-looking beer bottles from Carlsberg and took the company off their “sell” list, sending Carlsberg’s shares almost 2 percent higher.

The Euro STOXX 50 Index finished Friday’s session with a 0.18 percent advance to 2,867 – rising further above its 50-day moving average of 2,770. Its Relative Strength Index is 63.36 (FEZ).

Technical indicators revealed that the S&P 500 rose further above its 50-day moving average of 1,672 after finishing Friday’s session with a 0.27 percent advance to 1,687. Although a head-and-shoulders pattern appeared on the S&P chart from the period beginning in early May through September 6, the S&P recently broke the neckline of the pattern. (There had been a pinhead-and-shoulders pattern running from the period beginning on July 10 through August 16 and the S&P would have to rise above 1,695 to break the neckline of that pattern.) Its Relative Strength Index rose from 59.09 to 60.79. The MACD continued to rise above the zero line, suggesting the likelihood of a further advance.

For Friday, all sectors were in positive territory except for the energy sector, which declined 0.04 percent. The consumer staples sector led the group, with a gain of 0.82 percent.

Consumer Discretionary (XLY): +0.28%

Technology: (XLK): +0.09%

Industrials (XLI): +0.28%

Materials: (XLB): +0.67%

Energy (XLE): -0.04%

Financials: (XLF): +0.25%

Utilities (XLU): +0.76%

Health Care: (XLV): +0.24%

Consumer Staples (XLP): +0.82%

Bottom line: The “bad economic news is good news for stocks” era was alive and well on Friday, after disappointing economic data fueled hopes that the Fed would be reluctant to proceed with the “Septaper”.

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