Budget Hope Equals Market Rally

Hope for a settlement to the ongoing political standoff in Washington led to a rally today in U.S. financial markets. Meanwhile, on behalf of “the adults in the room”, Christine Legarde, Managing Director of the International Monetary Fund, spent the day issuing reminders that the global economy could be pushed into recession if the antics in Washington continue past the October 17 debt ceiling deadline.

The Dow Jones Industrial Average (NYSEARCA:DIA) picked up 64 points to finish Monday’s trading session at 15,301 for a 0.42 percent advance. The S&P 500 (NYSEARCA:SPY) advanced 0.41 percent to close at 1,710. The Nasdaq 100 (NASDAQ:QQQ) surged 0.69 percent to finish at 3,256. The Russell 2000 (NYSEARCA:IWM) climbed 0.55 percent to end the day at 1,090.

On London’s ICE Futures Europe Exchange, oil declined 32 cents (0.29 percent) to $110.10/bbl. (NYSEARCA:BNO). Gold rose $3.10 (0.24 percent) to $1,271.30 per ounce (NYSEARCA:GLD). Transports were parked on Monday, although the Dow Jones Transportation Average (NYSEARCA:IYT) managed to squeak upward by 0.03 percent.

In Japan, the Tokyo Stock Exchange was closed for holiday (NYSEARCA:EWJ). Meanwhile, increasing possibilities for a truce in Washington continued to weaken the dollar against the yen. The exchange rate for the yen fell to 98.50 per dollar on Monday. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY).

In China, stocks managed to advance as a result of reports that the nation may play a role in the development of Thailand’s high-speed railroad. China’s consumer price index rose 3.1 percent in September on a year-over-year basis, beating economists’ expectations of a 2.8 percent increase. Despite the unexpectedly high acceleration, inflation remains within the country’s target, although it has now put a limit on quantitative easing efforts. China’s bad news was that the nation’s exports declined 0.3 percent in September. The Shanghai Composite Index advanced 0.43 percent to close at 2,237 (NYSEARCA:FXI). The Hong Kong Stock Exchange was closed for a holiday (NYSEARCA:EWH).

As usual, events in the United States were reported as being the controlling influences in the European stock market, even though there was not much movement in the STOXX 50 index. Nevertheless, the region does have its own economic data and not all of it was good on Monday. Eurostat reported that Eurozone industrial production increased by 1.0 percent in September after falling 1.0 percent during August. In the greater, 28-nation European Union, industrial production increased by 0.5 percent after falling 0.6 percent in July.

On a year-over-year basis, industrial production dropped 2.1 percent in the Eurozone and it fell 1.6 percent in the EU-28 (NYSEARCA:VGK). Eurostat also reported that its House Price Index fell 2.2 percent for the Eurozone during the second quarter on a year-over-year basis. For the EU-28, the House Price Index fell 1.3 percent during the same period.

The Euro STOXX 50 Index finished Monday’s session with a 0.11 percent advance to 2,977 — climbing further above its 50-day moving average of 2,854. Its Relative Strength Index is 66.36 (NYSEARCA:FEZ).

Technical indicators revealed that the S&P 500 climbed further above its 50-day moving average of 1,678 after finishing Monday’s session with a 0.41 percent advance to 1,710. Its Relative Strength Index rose from 56.74 to 58.72. The MACD has now crossed above the signal line, suggesting the likelihood of a continued advance. For Monday, all sectors remained solidly in positive territory except for the utilities sector, which fell 0.54 percent. The healthcare sector led the group, with a 0.72 percent advance.

Consumer Discretionary (NYSEARCA:XLY): +0.41 percent
Technology: (NYSEARCA:XLK): +0.34 percent
Industrials (NYSEARCA:XLI): +0.38 percent
Materials: (NYSEARCA:XLB): +0.35 percent
Energy (NYSEARCA:XLE): +0.68 percent
Financials: (NYSEARCA:XLF): +0.49 percent
Utilities (NYSEARCA:XLU): -0.54 percent
Health Care: (NYSEARCA:XLV): +0.72 percent
Consumer Staples (NYSEARCA:XLP): +0.42 percent

Bottom line: Investors continued to remain optimistic that a deal could be reached in Washington before the October 17 debt ceiling deadline, as the major stock indices climbed higher on Monday. In spite of today’s hopeful rumors, the afternoon meeting between the White House and Senate leaders was postponed to give Congressional negotiators more time to make progress. Senate Republicans are now scheduled to meet Tuesday morning instead of this evening. Whatever comes out of all of this has to go back to the House which should/could happen as Thursday’s deadline arrives.

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

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