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After the close - The U.S. stock market got off to a strong start this morning, and despite some profit taking in the afternoon, managed to close with decent gains, especially on the NASDAQ. This move extended yesterday’s rally, which was brought about by the Fed’s decision to undertake added stimulus measures. At the close of the day, the Dow Jones Industrial Average was ahead 53 points (0.4%); the broader S&P 500 Index was up six points (0.4%); and the technology heavy NASDAQ, which led the market higher, tacked on 28 points (0.9%). Market breadth displayed a favorable bias, as advancing issues outnumbered decliners by about 2 to 1 the NYSE. The market sectors were strong overall, with leadership in the consumer cyclical, basic materials, energy, and technology issues. However, there was weakness in the healthcare and utility stocks. Traders may have chosen to forgo these equities to capitalize on other faster-moving sectors.

Technically, the S&P 500 Index broke through an area of resistance at about 1,440 yesterday. That upside move occurred on a large increase in volume, as traders sitting on the sidelines probably decided to enter the market. Notably, Wall Street has made a dramatic advance over the past couple of months. Specifically, the S&P 500 Index is now up about 14% from the 1,280 level reached in June. Given this runup, some consolidation, or even profit taking, may well be in order. Much will depend on the quality of the third-quarter corporate reports due out in a few weeks. However, before the earnings season kicks off in full force, we will likely be getting some guidance revisions.

There was a batch of economic reports released today. Most of the news was positive. Retail sales for the month of August increased 0.9%, which essentially matched the consensus view. Consumer prices rose 0.6% in August. Nonetheless, inflation is probably not yet a concern, given that the economic recovery is still fragile, and the Fed will likely remain committed to its low-interest-rate policy. Further, the University of Michigan’s Consumer Sentiment survey jumped to 79.2 in September, which was encouraging. Business inventories also picked up, which suggests a decent outlook. In contrast, industrial production fell notably in August, pushed lower, in part, by hurricane Isaac.

In corporate news, Western Digital (WDC) stock moved lower, after the disk drive maker tempered its outlook, but it announced that it will pay a dividend and has also increased its share repurchase program. Also, in technology, Tessera Technology (TSRA) was largely flat even though the company issued decent guidance. Actively traded issues that rose in price included: Facebook (FB), Ford (F), and Alpha Natural Resources (ANR). Declining issues included: Pfizer (PFE - Free Pfizer Stock Report), AT&T (T - Free AT&T Stock Report), and Verizon (VZ - Free Verizon Stock Report).


At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
 

12:00 PM ET - The world equity markets are pushing forward nicely on the final day of the trading week, with yesterday’s news that the Federal Reserve will enact another round of bond buying providing the big impetus. Overnight, Asia’s indexes finished up sharply; the major European bourses are holding large gains as trading draws to a conclusion on the Continent; and the key U.S. equity indexes are following up Thursday’s outsized gains with another decent showing—though the Dow Jones Industrial Average and the S&P 500 Index are currently off of earlier session highs. The NASDAQ is faring better, mostly due to a strong showing from technology (more below). Buying is even more pronounced in the mid- and small-cap markets, with both the S&P Mid-Cap 400 and the Russell 2000 up more than 1%, after these sectors lagged yesterday. Overall, advancing issues are well ahead of decliners on both the Big Board and the NASDAQ. 

The buying has been pretty defined so far today. The energy, financial, technology, and basic materials groups are witnessing the biggest gains so far, while the defensive-oriented consumer noncyclical, healthcare, telecom, and utilities sectors are in the red. Within the tech space, shares of Apple (AAPL) are up on reports of of stronger-than-expected demand for the iPhone 5. A prominent consumer noncyclical company was also in the news this morning. Before trading commenced on these shores, reports surfaced that food processing giant Kraft Foods (KFT - Free Kraft Stock Report), which plans to split into two companies on October 1st, will be leaving the Dow 30. Taking the company’s place on September 24th will be UnitedHealth Group (UNH). Shares of both companies are moving in opposite directions today.

Keeping up with yesterday’s theme, the investment community is clearly focused on the U.S. economy today. And there was quite a bit of data released on that front this morning. Before the market opened, we learned that retail sales were up nicely and core consumer prices were rather tame in August. Still, both reports did raise some red flags, but not enough to stall the equity market’s push higher. The news after trading commence was mixed. At 9:15 A.M. (EDT), the Federal Reserve reported that industrial production fell 1.2% in August after having risen 0.5% in July, hurt somewhat by the impact of Hurricane Isaac on output in the Gulf Coast region at the end of August. The weak industrial production data was offset some by the University of Michigan’s survey for September, which showed that consumer sentiment came in at 79.2, up from the 74.3 in the prior month and marginally better than the consensus expectation of 73.5. Our sense is that the mixed readings on the economy had a lot to do with the pullback in equities as trading progressed through the late morning hours.

The continued debate about the impact of Federal Reserve’s latest monetary policy actions and the plethora of economic news on these shores today should keep both the equity and commodities markets active as the week draws to a close. While it is looking like it will be tough to knock the bulls out of the driver’s seat, we would not be surprised if some selective profit taking took place in a market that looks quite overbought right now, especially with the gains recorded within the last 24 hours. The S&P Volatility Index (or VIX) currently trades below 15—any price south of 20 usually suggests that buying may be a bit overheated. Stay tuned.   - William G. Ferguson 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Stocks to Watch from The Survey Although this is a quiet time for earnings, there are a couple reports that investors are going over this morning. Shares of Analogic Corp. (ALOG) are trading sharply higher in the premarket, after the designer and producer of advanced data conversion and computer-based signal processing instruments reported better-than-expected July-period results. On the other hand, the stock of Werner Enterprises (WERN) is indicating a sharply lower opening this morning, after the trucking company issued third-quarter guidance that fell short of investors’ expectations.

In other news, health insurer UnitedHealth Group (UNH) will be replacing processed foods giant Kraft (KFTFree Kraft Stock Report) as a member of the Dow Jones Industrial Average effective September 24th. The shift is likely a result of Kraft’s plan to split into two separate publicly traded companies, which is expected to take place on October 1st. UNH stock is trading moderately higher in the premarket, while KFT shares are down slightly. – Matthew E. Spencer

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Before The Bell - Well, the Federal Reserve spoke yesterday, rather, the nation's central bank acted--and in a big way--and for once, it was not a case of buy on the rumor and sell on the news.

Indeed, after Wall Street pundits had been speculating for weeks that the Fed would launch a new round of bond buying when it convened its two-day FOMC meeting on Wednesday and yesterday, the bank did just that, promising to buy $40 billion in mortgage-backed bonds a month in the hopes of driving down the still gravely high unemployment rate. That announcement, coming at 12:30 PM (EDT) yesterday unleashed a torrent of new buying in an already very overbought stock market. All told, by the close, the Dow Jones Industrial Average had soared by 206 points; the Standard and Poor's 500 Index had jumped by 23 points; and the NASDAQ had soared by 42 points. For once, in a strong rally, the larger-cap indexes outperformed the smaller-cap composites. That could well change today, if past is prologue and we get a follow-through on the latest rally.

What made Wall Street so giddy? It was not just the adoption of the bond-buying program, but rather the admission by the Fed to the effect that its incremental approach in place up until now was just not working, as the jobless rate, the focal point of its current monetary easing efforts, remains above 8%, at 8.1%. Moreover, there are millions of underemployed Americans working either part time or at temporary jobs. There also are many who have stopped looking for work and are thus not technically categorized as unemployed, albeit still not employed.

In addition to the new bond-buying endeavors, the lead bank also announced that it was extending its so-called Operation Twist program, in which the Fed buys longer-dated Treasury issues and sells shorter duration paper through yearend. Operation Twist is another effort to drive down long-term borrowing costs. That program has the effect, the reasoning goes, of further encouraging the buying of homes. Indeed, the housing market has come back at least part of the way so far this year, although it has a long road to yet travel. This comeback is evolving in spite of the dour employment outlook, the uncertain home pricing structure, and the difficulty for many to secure a mortgage. The Fed also said that it would keep the present low interest-rate structure until at least mid-2015; heretofore, its end target had been late 2014.

As for the market yesterday, it was not hurt by a sharper-than-expected rise in producer prices, with the Producer Price Index for August surging by 1.7%--its highest monthly gain in more than four years. Also, weekly jobless claims increased more than expected, in another example of the still-weak jobs market.

Now, this morning, we are getting a succession of key economic reports, starting out with the companion Consumer Price Index, a report just issued, which showed another spike up in monthly inflation, on higher energy costs. All told, the gain was 0.6%. However, food price inflation--unlike at the producer level--was muted, with a gain of just 0.2%. Also, backing out the normally volatile food and energy components from the mix, to get the so-called core CPI reading, we find a much more tame situation, with a gain of just 0.1%, and that is apparently what the Fed is looking at. Also, data out showed a sharp increase in retail sales for last month, with that metric gaining almost 1%. Later on this morning, the government will issue data on industrial production and factory usage, while the University of Michigan will report on consumer sentiment.

Finally, the European bourses are all sharply higher at this hour, with gains of between 1.5% and 2.0% in the London FTSE 100, the Frankfurt DAX, and the Paris CAC-40. And over here, our futures are pointing to a nicely higher start to the market, with the S&P 500 futures up by four points and the NASDAQ futures ahead by more than nine points. – Harvey S. Katz    

At the time of this article's writing, the author did not have positions in any of the companies mentioned.