Commenting on today’s trading with a focus on strong European economic releases, Gorilla Trades strategist Ken Berman said:
While the major indices still couldn’t break out of their trading ranges that developed in August, technicals are improving, and today’s broad rally could continue in the second half of the week. Market internals improved notably today, thanks to the gains across the key sectors, and while small-caps were relatively weak again, the large-cap benchmarks quickly erased yesterday’s losses.
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The major indices all registered significant gains today, as the positive political developments and the bullish European economic releases boosted investor sentiment. The Dow was up 237 or 0.9%, to 26,355, the Nasdaq gained 103, or 1.3%, to 7,977, while the S&P 500 rose by 32, or 1.1%, to 2,938. Decliners outnumbered advancing issues by a more than 4-to-1 ratio on the NYSE, where volume was slightly above average again.
We saw yet another sharp shift in investor sentiment today and equities got a huge boost across the globe. The stocks most affected by the trade tensions outperformed the broader market by a wide margin, helped by the positive developments in Hong Kong. Materials were particularly strong throughout the session, as the price of oil rode by almost 5% and the price of gold hit another six-year high despite the risk-on shift. Industrials and tech stocks also shined, and after a slightly weaker start, consumer-related issues were among the strongest issues at the end of the day as well.
European economic releases not only catalyst as China weighs supreme
Even though one week ago, the Chinese administration looked adamant concerning both the issues of the trade skirmish with the U.S. and the Hong Kong protests, we saw a clear change in strategy since then. The country opted against retaliating in the wake of President Trump’s latest tariff threats, and today, the Hong Kong crisis took a surprisingly positive turn. Although the decision to withdraw the much-debated extradition bill was made by the Hong Kong governor, it's hard to imagine that the mainland leadership hasn't approved it, which could signal that a more peaceful period is ahead for investors.
Investors will be in for a very busy day in terms of economic releases day, with a focus on the labor market and the services economy. The ADP payrolls number could make the biggest waves, just one day ahead of the government jobs report, but the weekly number of new jobless claims and the ISM non-manufacturing PMI might also move the market. The job market and the closely connected remained robust according to all of the key measures in recent months despite the weakness in manufacturing, and another positive surprise would be a great sign ahead of the last quarter of 2019.
Today's better-than-expected global services PMIs were crucial not just because they mean that a global recession could be avoided, but because the global indicators have been leading the U.S. ones all year. The main reasons behind this are likely the effect of the Trump Administration fiscal stimulus and the stability of the U.S. banking system, and while the impact of the stimulus will likely diminish in the coming months, growth could remain strong in the consumer economy. So, while a worse-than-expected U.S. PMI might cause turmoil across asset classes, the economy is still likely to get a boost from the consumer in the fourth quarter. Stay tuned!