The stock market enjoyed a broad-based rebound on Thursday that placed the Dow Jones Industrial Average (+1.2%) back above its 200-day moving average (15483). The S&P 500 also gained 1.2%, ending just north of its 100-day average (1772) after flirting with that level during the afternoon.
Stocks began on an upbeat note and climbed through the first 90 minutes of action. Much of the advance was paced by groups that faced aggressive selling during the recent pullback, suggesting short covering played a role in the rally.
Yen weakness also factored into the advance as the retreat of the Japanese currency calmed fears about some participants being forced out of yen-based carry trades due to strength in the funding currency. The dollar/yen pair ended the New York session right above 102.00 after starting the day near 101.20.
The consumer discretionary group (+2.1%) ended in the lead with media names making a significant contribution after Dow component Disney (DIS 75.56, +3.80) beat its Capital IQ consensus estimate by 13 cents on in-line revenue.
Elsewhere among discretionary shares, retailers and homebuilders displayed industry-wide strength. The SPDR S&P Retail ETF (XRT 80.00, +1.88) gained 2.4% and iShares Dow Jones US Home Construction ETF (ITB 24.82, +0.75) jumped 3.1%.
Also of note, the largest S&P 500 sector, technology (+1.2%) ended in line with the broader market. Most large cap components displayed strength, but Facebook (FB 62.16, -0.03) ended little changed after its peer, Twitter (TWTR 50.03, -15.94), reported earnings. Although the social media company announced above-consensus results, its Monthly Active Users metric showed disappointing growth.
On the countercyclical side, all four groups—consumer staples (+1.1%), health care (+0.5%), utilities (+0.6%), and telecom services (+0.1%)—were unable to keep pace with the S&P 500. Notably, the staples sector received support from Green Mountain Coffee Roasters (GMCR 102.10, +21.22) after the company announced a strategic partnership with Coca-Cola (KO 38.03, +0.42), in which KO will purchase a 10% minority stake in GMCR. In addition, GMCR reported a bottom-line beat on below-consensus revenue.
Treasuries ended near their lows with the 10-yr yield up three basis points at 2.71%.
Participation was a bit above average as 730 million shares changed hands at the New York Stock Exchange.
Today's economic data featured three reports:
- The initial claims level settled back into the 330,000 range this week as the initial claims level fell to 331,000 from an upwardly revised 351,000 (from 348,000). The Briefing.com consensus expected the initial claims level to fall to 335,000.
- Fourth quarter nonfarm labor productivity increased 3.2% while the Briefing.com consensus expected an increase of 2.4%. That was down from an upwardly revised 3.6% increase (from 3.0%) in the third quarter. Profit growth outperformed labor gains in the fourth quarter. Compensation per hour increased only 1.5%, down from a 1.6% increase in the third quarter. With compensation increasing at a slower rate than productivity, unit labor costs fell 1.6%. That was the third quarterly decline of 2013.
- The U.S. trade deficit for December widened to $38.7 billion from an upwardly revised $34.6 billion (from $34.3 billion). The Briefing.com consensus expected the trade deficit to increase to $36.0 billion. The Bureau of Economic Analysis assumed the trade deficit in December increased to around $37.0 billion in the advance estimate for fourth quarter GDP. The slightly higher than expected deficit will likely contribute to lower GDP growth in the second estimate.
- Nasdaq Composite -2.9% YTD
- S&P 500 -4.1% YTD
- Russell 2000 -5.1% YTD
- Dow Jones Industrial Average -5.7% YTD
Leaders & Laggards
Next Day in view
All 3 major indices rallied > 1% last night ahead of the employment data. Volumes were 743m shares traded on the NYSE. Today we have the all important unemployment data which could send the market either way.
Market Call: ABSTAIN
Date: 7 Jan 2014