Are Earnings Fueling the Stock Market Advance?

Quarterly earnings reports continue to roll in, with over 70 percent beating analysts’ estimates.

Quarterly earnings reports continued to feed the bulls on Monday. A better-than-expected earnings report from Boise Cascade (NYSEARCA:BCC) helped invigorate the materials sector. Analysts had been expecting earnings of 13 cents per share. Their estimate was $2.02 lower than the actual result of $2.15 per share.

The Dow Jones Industrial Average (NYSEARCA:DIA) gained 19 points to reach 14,567 for a 0.14-percent advance. The S&P 500 (NYSEARCA:SPY) climbed 0.47 percent to close at 1,562.

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The Nasdaq 100 (NASDAQ:QQQ) jumped 1.06 percent to 2,810. The Russell 2000 (NYSEARCA:IWM) rose 0.25 percent to end the day at 914.

Caterpillar (NYSEARCA:CAT) enjoyed a nice reversal of fortune on Monday. Despite missing both its revenue target ($13.2 billion vs. $13.7 estimate) and quarterly earnings ($1.31 per share vs. $1.40 forecast), CAT crawled into positive territory just after 11 a.m. to finish the day with a 2.83-percent advance. The company’s announcement that it would resume its stock repurchase program during the second quarter — to the tune of $1 billion — put investors in a happier mood.

In other major markets, oil surged 1.37 percent to close at $31.82. On London’s ICE Futures Europe Exchange, June futures for Brent crude oil advanced by 86 cents, or 0.86 percent, to $100.51/bbl. (NYSEARCA:BNO, NYSEARCA:USO).

June gold futures advanced by $29.40, or 2.11 percent, to $1,425.00 per ounce (NYSEARCA:GLD). Transports inched forward on Monday, with the Dow Jones Transportation Index (NYSEARCA:IYT) advancing 0.12 percent…

European stocks advanced on Monday after Italy re-elected 87-year-old Giorgio Napolitano to a second term as the nation’s president. Napolitano is seen as the best hope for getting a new government in place, which will be able to elect a new prime minister. The Euro STOXX 50 Index finished Monday’s trading session with a 0.33-percent advance to 2,583 — remaining below its 50-day moving average of 2,644. Japan’s Nikkei 225 Stock Average (NYSEARCA:EWJ) jumped 1.89 percent to 13,568 as the yen declined to a four-year low of 99.74 per one American dollar.

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In China, stocks traded in a tight range on Monday following the magnitude 7 earthquake in Sichuan province on Saturday. The Shanghai Composite Index (NYSEARCA:FXI) dipped 0.11 percent to 2,242. Hong Kong’s Hang Seng Index (NYSEARCA:EWH) advanced 0.14 percent to 22,044.

Technical indicators reveal that the S&P 500 rose further above its 50-day moving average of 1,544 to close at 1,562, easing some of the anxiety built-up on Thursday when it closed below the 50-day MA for the first time this year.

Investors should be watching for the possibility that a head-and-shoulders pattern could be forming, which would signal a decline. The activity during the next few days will determine whether the right shoulder forms. Its Relative Strength Index rose to 51.66. Although the MACD remains below the signal line (suggesting the likelihood of a further decline) the gap is narrowing somewhat.

For the day, all sectors finished solidly in positive territory. The energy, materials, and technology sectors led the way.

Consumer Discretionary (NYSEARCA:XLY):  +0.49 percent

Technology (NYSEARCA:XLK):  +0.78 percent

Industrials (NYSEARCA:XLI):  +0.12 percent

Materials (NYSEARCA:XLB):  +0.95 percent

Energy (NYSEARCA:XLE):  +1.07 percent

Financials (NYSEARCA:XLF):  +0.28 percent

Utilities (NYSEARCA:XLU):  -0.12 percent

Health Care (NYSEARCA:XLV):  +0.61 percent

Consumer Staples (NYSEARCA:XLP):  +0.24 percent

Bottom line: A savage earnings beat by Boise Cascade helped the materials sector advance by nearly a full percentage point. Investor bullishness continued to be fed by a flow of earnings reports, with a 70 percent record of beating analysts’ estimates so far during this quarter.

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John Nyaradi is the author of The ETF Investing Premium Newsletter.

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