From Barron's Stocks to Watch:
When they said volatility had returned to the stock market, they weren’t kidding.
The Dow Jones Industrial Average gained 216.58 points, or 1.3%, to 16,577.90 today, the ninth move of 200 points or more in either direction in 17 trading days so far this month. Not only is that more than the seven such days that had occurred previously in 2014, you have to go back to August 2011, when there were 10 such days, to find more (and that took an entire month to accomplish).
The S&P 500, meanwhile, gained 1.2% to 1,950.82, the Nasdaq Composite advanced 1.6% to 4,452.79 and the small-company Russell 2000 finished up 1.8% at 1,116.49.
Why is the market surging? Top-notch earnings from big Dow components like Caterpillar (CAT) and 3M (MMM), and a dividend increase from Visa (V) certainly have helped, as these are some of the priciest stocks in the price-weighted Dow. And then there’s the economic data. US jobless claims rose to 283,000, a tad bit higher than expected but still ridiculously low. Global purchasing managers’ indexes also showed signs of improvement, especially in Europe. If the recent selloff was a “growth scare,” then perhaps growth isn’t as scary as many investors thought.
Although the Energy Select Sector SPDR ETF (XLE) was up 1.86% to $85.90 we believe we'll have an opportunity to own the hydrocarbon equities cheaper.
ISI Group’s Dennis DeBusschere, however, worries that the stronger-than-expected growth out of Europe could ultimately be bad news for the markets:
We have been of the opinion that Fed actions are less important today than they have been over the past few years as markets are now priced to a point where we need to see growth not just easy policy. That is not as true for the Eurozone, so these better than expected manufacturing data could be considered negative for risk assets if they further slow the progress of fiscal reforms and monetary stimulus.Marketfield’s Michael Shaoul and team are pleased with the state of corporate earnings but worry that the market could retest its recent lows....MORE
