Gains On Lighter Volume Reveal Lackluster Buying Demand


Major Averages Rally

The major averages rallied on Wednesday, sending the benchmark S&P 500 Index to a fresh 2009 high on positive economic and political data. However, volume, a critical component of institutional demand, was reported lower on both major exchanges. That signaled that large institutions were not aggressively buying stocks. Advancers led decliners by about a 3-to-2 ratio on the NYSE and on the Nasdaq exchange. There were 47 high-ranked companies from the Leaders List making a new 52-week high and appearing on the BreakOuts Page, higher than the 36 issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Chinese Industrial Demand Surges

Overnight, China reported that its industrial production surged thanks in part to strong demand. This bodes well for the global economic recovery and helps allay concern that the 8-month rally in global equities is exaggerated. Elsewhere, the Fed signaled they do not plan on raising rates any time soon. This also removed a ton of pressure on those that subscribe to the notion that the stock market’s 8-month advance was due to a massive government induced liquidity driven rally. The underlying notion is that banks are able to borrow money near record lows and then use that money however they may see fit. Most financial institutions have earned tremendous profits in recent quarters thanks in part to the relative ease of borrowing money. In general, people don’t like to hold cash (especially when rates are near zero), instead they prefer to invest it. That basically summarizes the robust move we have seen in global capital markets in recent months.

The S&P 500 Index, which skidded -38% in 2008, has rebounded +62% from a 12-year low in March. So far, approximately eighty percent of S&P 500 companies have released their Q3 results and the market’s reaction of late has been muted at best. At the beginning of earnings season, the market was steady, then sold off, then bounced back over the past week and a half as buyers showed up and bought shares. The average company in the S&P 500 that has reported their Q3 results have topped estimates according to the latest data provided by The government reported that Q3 GDP rose last month which in part helped companies beat estimates.


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