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Sentiment, durable goods orders and Chicago PMI bolster stocks

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As if this morning's pre-market economic data wasn't enough for investors to try and digest, more economic data released in the early morning trade has added some yeast to the major market indexes and have them rising further.

The headline numbers had the November Michigan Sentiment number revised marginally lower at 84.2 from the preliminary reading of 85. November's final sentiment number compares to October's 80.6, September's 86.1 and August's 87.6. While the final sentiment number improved from October's reading, the expectations and present reading also improved at 78.5 and 93.1 respectively, compared to Octobers 73.1 and 92.4 expectations and present levels.

The sentiment numbers most likely have a greater impact on sectors that cater to the consumer. One of the obvious sectors associated with sentiment are the retailers, which have both the S&P Retail Index (RLX.X) 290 +2.48% and Retail HOLDRS (AMEX:RTH) 75.55 +2.23% showing gains in today's session.

Other economic data giving a boost to stocks was October durable goods orders gaining 2.8%, which was above consensus for a gain of 1.8% and the first increase in the last three months. September's previously reported -4.9% decline was revised upward to -4.6%. In the latest month, defense capital goods fell 17.2%. However, the closely watched subset of this report, capital-goods demand excluding volatile military spending, improved 4.2%. Non- defense capital goods also excluding commercial aircraft orders, which can significantly sway the report from month to month, rose a much-improved 5.3%.

The latter part of this report is providing bullishness to the Dow Jones Transportation Average Index (TRAN) 2,358 +3.98% and the Airline Index (XAL.X) 43.73 +3.0%.

In addition, the Chicago Purchasing Managers Index (PMI) rose to 54.3% in November from 45.9% in October, which was well above consensus of 48.5%. A reading over 50 indicates business expansion, while reading below 50% mark contraction. Within the report, the production index rose to 57.3 from 48.6. New orders surged to 60.8 from 47.7 a month earlier.

The prices paid fell to 57.2 from 62, while inventories rose to 43.3 from 40.6 and order backlogs rose to 47.7 from 36.6.

A large contributor to durable goods orders last month was a 65% jump in orders for communications equipment, the most for one month in nearly six years. Computers and electronics orders improved a respectable 6.2%, with machinery demand up 3.3%. Orders for autos and parts rose 3.9%, while orders for appliances and electrical components fell 1.6% in October. Overall, orders excluding transportation, another volatile category, were up 2.4%.

These economic reports combined with a bullish tone before the opening bell finds the Dow Industrials (INDU) 8,893 +2.5% gaining an impressive 217 points. The broader S&P 500 Index (SPX.X) 935 +2.4% is gaining 22 points, while the broader NASDAQ Composite (COMPX) 1,482 +2.63% and NYSE Composite (NYA.X) 494 +2.19% are both challenging there relative highs set Monday.

Sector action is bullish with the exception of the Natural Gas Index (XNG.X) 143 -0.37% and the Gold/Silver Index (XAU.X) 62.38 -1.34%.

Sectors standouts have The CBOE Internet Index (INX.X) 110 +5.15%, Semiconductor Index (SOX.X) 376 +5.16%, Wireless (YLS.X) 60.98 +4.2%, Fiber Optic (FOP.X) and now the Transports (TRAN) 2,360 +4.07% leading sector bullishness.

Jeff Bailey

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