Large cap stocks break out on dovish Fed confidence

Thursday, September 18, 2014 -

Stocks broke out of sideways trading today, as traders accept a growing chorus that the Fed will likely defer any action on interest rates well into 2015 – large caps set records while small caps continue to suffer.

US Stocks followed through in earnest on the Fed see-saw bump yesterday as a clear rotation out of risk stocks into the safety of blue chips is underway. The gains on the day lifted the Dow and the S&P 500 to new record closing highs while the small cap Russell 2000 is on the edge of a bearish “death cross” – more about that tomorrow.

The indexes moved up in early trading and held there for the remainder of the day, closing near the highs for the day. The Dow jumped 109 points (+0.6%) to 17,266, the Nasdaq advanced 31 points (+0.7%) to 4,593 and the S&P 500 climbed 10 points (+0.5%) to 2,011. The NYSE finished at +0.46% and the small cap Russell 2000 at +0.47%.

The media reports that Wall Street is convinced that the Fed has sufficiently eased concerns about interest rates in yesterday’s Fed statement, where the minimally changed policy suggests that higher interest rates are a long way down the road –based on leaving “considerable time” in the statement. Personally, I am not in that camp – I don’t think anybody knows, particularly the Fed.

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Traders embrace the bad, ignore the good

We got a lot of bad economic news today and a little good news. And based on the reaction of the market, it looks like traders are happy about the bad news and willing to shrug off the good news.

The good news wasn’t much, as the Labor Department reported a pullback in initial jobless claims in the week ended September 13th.

The report said initial jobless claims tumbled to 280,000, a decrease of 36,000 from the previous week’s revised level of 316,000. Economists had been expecting jobless claims to edge down to 305,000. Don’t make too much of this, as the media probably forgot to mention that this pullback comes after a big impact in jobless claims the previous week by the shortened Labor Day holiday.

The bad news was a little more serious as the Commerce Department released a separate report showing that housing starts fell by much more than expected in the month of August, plummeting 14.4% after an amazing jump of 22.9% for the July number. Things like this happen when you pull numbers forward.

Housing is still in the gutter and all the shuffling by expert statisticians will make no difference going forward. It is amazing to me that only yesterday the NAHB homebuilder confidence rose to a 9-year high when today’s housing report from the Department of Commerce showed permits sliding 5.6% in addition to the plunge in starts – with every region in the country showing . . .

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