Stocks Resumed Their Advance On Friday

After a two-day retreat, the S&P 500 resumed its advance, although small-cap stocks stalled.

Friday’s Manufacturing PMI report from the Institute for Supply Management sent stocks climbing again, as manufacturing PMI rose to 56.4 in October from September’s 56.2. Economists were expecting a decline to 55. A reading above 50 signals expansion. A number of upbeat earnings reports helped restore investors’ enthusiasm after two disappointing trading sessions.

Small-cap stocks had their third consecutive disappointing day as the Russell 2000 Index experienced another moderate decline, closing just above its 20-day moving average of 1,095.36 by ending the week at 1,095.67. The result suggested that there is a lingering bit of risk aversion among investors, who have yet to re-embrace small-cap stocks with the same enthusiasm which was sending the Russell 2000 to new record highs on an almost-daily basis during the previous two weeks.

The Dow Jones Industrial Average (DIA) picked up 69 points to finish Friday’s trading session at 15,615 for a 0.45 percent advance. The S&P 500 (SPY) advanced 0.29 percent to 1,761.

The Nasdaq 100 (QQQ) rose 0.06 percent to finish at 3,379. The Russell 2000 (IWM) declined 0.41 percent to 1,095.

In other major markets, oil (USO) sank 1.62 percent to close at $34.13.

On London’s ICE Futures Europe Exchange, December futures for Brent crude oil declined $2.83 (2.60 percent) to $106.01/bbl. (BNO).

December gold futures declined $7.80 (0.59 percent) to $1,315.90 per ounce (GLD).
Transports got back above the clouds on Friday, as the Dow Jones Transportation Average (IYT) climbed 1.03 percent.

In Japan, downbeat earnings forecasts combined with a strengthening yen to send stocks lower. A stronger yen causes Japanese exports to be less competitively priced in foreign markets. The yen strengthened to 97.86 per dollar during Friday’s trading session in Tokyo (FXY). Disappointing earnings outlooks from some key companies intensified bearish sentiment. Sony lowered its yearly profit forecast by 40 percent, sending the stock on an 11.3 percent submarine ride. Mitsui Chemicals cut its yearly income forecast by 80 percent, causing the stock to take an 8.08 percent nosedive. Ricoh sank 6.68 percent after an earnings miss. The Nikkei 225 Stock Average fell 0.88 percent to 14,201 (EWJ).

In China, stocks advanced after the HSBC China Manufacturing PMI rose to 50.9 in October from 50.2 in September. The Shanghai Composite Index advanced 0.37 percent to close at 2,149 (FXI). Hong Kong’s Hang Seng Index rose 0.19 percent to end the day at 23,249 (EWH).

In Europe, stocks made a slight retreat after a number of disappointing earnings reports, particularly from the Royal Bank of Scotland (which fell beyond 7 percent) and Renault, which sank 4.99 percent. The Euro STOXX 50 Index finished Friday’s session with a 0.52 percent decline to 3,052 – remaining above its 50-day moving average of 2,914. Its Relative Strength Index is 63.89 (FEZ).

Technical indicators revealed that the S&P 500 climbed further above its 50-day moving average of 1,698 after finishing Friday’s session with a 0.29 percent advance to 1,761. Its Relative Strength Index rose from 62.55 to 64.06. The MACD has taken a slight dip toward the signal line, suggesting the likelihood that the S&P 500 will decline in the immediate future.

For Friday, most sectors finished in positive territory, except for the materials and energy sectors.

Consumer Discretionary (XLY): +0.27%

Technology: (XLK): +0.06%

Industrials (XLI): +0.66%

Materials: (XLB): -0.23%%

Energy (XLE): -0.36%

Financials: (XLF): +0.26%

Utilities (XLU): +0.72%

Health Care: (XLV): +0.65%

Consumer Staples (XLP): +0.39%

Bottom line: Investors were back in a buying mood on Friday after the October manufacturing PMI report from the Institute for Supply Management beat expectations.

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