By: Michael Vodicka
“That reversal turned into a full-blown raging rally on Thursday and Friday when European Central Bank Chairman Mario Draghi stated that the ECB is fully committed to keeping the Euro zone intact.”
Stocks surged higher on Thursday and Friday, lifting the averages to their third consecutive weekly gain. For the week, the Dow Jones added 2%, the S&P 500 gained 1.7% and the NASDAQ trailed with a 1.1% gain.
It was really a tale of two weeks. Early in the week, stocks were taking it on the chin, falling sharply on Monday and Tuesday as slower earnings growth and trouble in the Euro zone weighed on the market.
But then it was time for the rumor mill to kick in.The market reversal began on Wednesday with rumors that the Fed was preparing for another round of monetary stimulation. That reversal turned into a full-blown raging rally on Thursday and Friday when European Central Bank Chairman Mario Draghi stated that the ECB is fully committed to keeping the Euro zone intact. That’s nothing we haven’t heard a thousand times before, but with another ECB meeting set for next week, it got the bulls all fired up.
So when you add together the coordinated action of two very powerful central banks, it was enough to give the bulls a serious shot of adrenaline and sent the averages shooting higher and back to the multi-year highs from April.
Other than central bank rumors and monetary stimulation, earnings season continues to look pretty decent, but we are definitely seeing slower growth, with earnings posting their slowest growth in 11 quarters. Earnings aren’t exactly falling off a cliff, but the Street loves growth so that looks like a slight headwind at this point.
Looking forward, in addition to earnings and the Euro zone, we’ve got a few important economic releases on tap for this week.
- Tuesday: Consumer Confidence
- Wednesday: ISM and Fed Announcement
- Friday: Non-Farm Payrolls
The Fed announcement and payrolls data will be huge, so this should be an important and busy week for the Street.
Updates:
Apple, Inc. (AAPL) posted a rare quarterly miss, falling short of analyst expectations after sales of the iPhone slowed. That wasn’t a huge surprise with customers waiting for the new iPhone 5 to come out, but it did send shares of Apple down 5% to $575. Longer term, this is still the best company in technology and maybe the entire market, so I still like being long Apple.
Double Gold (DGP) was a leader on the week, adding 7% as investors anticipated more action from the Fed. Gold has been pretty flat lately, but with the central banks heating up that could change on a dime. Gold has been up 10 years in a row, so the precious metal needs a second half rally to keep the win streak alive.
And finally Bunge Ltd (BG) was also a winner on the week, adding 5% in spite of missing Q2 expectations by 10%. Bunge has been pretty lumpy for the last year, but with the long-term trend in agriculture well in play, this is still a great way to pay it.
That’s all for this week, until next time here is a good article discussing how hedge funds are making big bets on commodities ahead of the Fed meeting. Enjoy.
Hedge Funds Betting Big on Commodities Ahead of Fed
Your Investment Partner,
Mike
