How the Earnings Lift Is Keeping the Markets Going

The Dow Jones Industrial Average set another record on Wednesday, closing above 15,000 for the second consecutive day.

The Dow Jones Industrial Average (NYSEARCA:DIA) had an opportunity on Wednesday to get comfortably established in the 15,000 range as it continued beyond 15,100. The other major stock indices also headed higher as the flow of better-than-expected earnings reports continued. Whole Foods (NASDAQ:WFM) made a healthy ten percent advance after its quarterly earnings of 76 cents per share beat expectations of 74 cents.

Computer game manufacturer Electronic Arts (NASDAQ:EA) gave a forecast of adjusted earnings for its fiscal year, ending in March, of $1.20 per share, zapping expectations of $1.10 per share. EA’s share price advanced to the next level with a 17-percent gain at Wednesday’s closing bell.

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After the closing bell, Tesla Motors (NASDAQ:TSLA) reported adjusted quarterly earnings of 12 cents per share, running over expectations of only 3 cents per share. It was Tesla’s first profitable quarter. After-hours trading sent the company’s share price for a ride on one of CEO Elon Musk’s rockets, soaring more than 26 percent higher than the $55.79 at Wednesday’s closing bell.

The Dow gained 48 points to finish Wednesday’s trading session at a new record-high of 15,105.12 for a 0.32-percent advance. The Dow reached a new record intraday high of 15,106.81. The S&P 500 (NYSEARCA:SPY) advanced 0.41 percent to close at yet another record high of 1,632.69 after setting a new intraday record high of 1,632.78. The Nasdaq 100 (NASDAQ:QQQ) climbed 0.52 percent to 2,968. The Russell 2000 (NYSEARCA:IWM) advanced 0.27 percent to end the day at 970.

In other major markets, oil (NYSEARCA:USO) advanced 1.15 percent to close at $34.40. On London’s ICE Futures Europe Exchange, June futures for Brent crude oil  declined by 11 cents, or 0.11 percent, to $103.96/bbl. (NYSEARCA:BNO). June gold futures  advanced by $23.70 (1.64 percent) to $1,472.50 per ounce (NYSEARCA:GLD). Transports continued to get good mileage on Wednesday, with the Dow Jones Transportation Index (NYSEARCA:IYT) rising 0.29 percent.

European stocks advanced as well, as fears eased concerning the possibility that Germany may have entered a recession with the rest of the euro zone (NYSEARCA:VGK). Wednesday’s report from Destatis indicated that Germany’s industrial production increased by 1.2 percent in March on a month-over-month basis (NYSEARCA:EWG). The Euro STOXX 50 Index finished with a 0.56-percent climb to 2,784 — remaining above its 50-day moving average of 2,662.

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In Japan, stocks made a big advance as the yen dropped as low as 99.14 per dollar during Wednesday’s trading session in Japan. “Yenny watch” has resumed as the exchange rate for the yen approaches one cent — at which point it will become the yenny.  A weaker yen results in more-competitive prices for Japanese exports in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average surged 0.74 percent to 14,285 (NYSEARCA:EWJ).

In China, stocks advanced following the release of the highly-controversial April trade balance report from the General Administration of Customs in Beijing. The report’s boast of a 14.7 percent increase in exports has been widely criticized by analysts from Nomura, Bank of America, and Mizuho Securities because most of the reported exports could be explained by a 57-percent increase in shipments to Hong Kong, which were allegedly conducted as an obfuscation tactic to conceal capital flows into China. The Shanghai Composite Index advanced 0.48 percent to 2,246 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index climbed 0.86 percent to 23,244 (NYSEARCA:EWH).

Technical indicators reveal that the S&P 500 is climbing further above its 50-day moving average of 1,565 after hitting a new record-high close of 1,632.69 — motivating bears to hope that we are watching the formation of a head-and-shoulders pattern, which would signal a decline. Its Relative Strength Index advanced from 66.99 to 68.58 — just below the threshold level of 70. Most investors consider a Relative Strength Index above 70 as an “overbought” signal. The MACD continues to make a further break above the signal line, suggesting the likelihood of a further advance.

For the day, all sectors finished solidly in positive territory except for utilities, which fell back into the red by 88 basis points. Materials, financial, and technology led the group.

Consumer Discretionary (NYSEARCA:XLY):  +0.07 percent

Technology (NYSEARCA:XLK):  +0.80 percent

Industrials (NYSEARCA:XLI):  +0.63 percent

Materials (NYSEARCA:XLB):  +0.87 percent

Energy (NYSEARCA:XLE):  +0.16 percent

Financials (NYSEARCA:XLF):  +0.81 percent

Utilities (NYSEARCA:XLU):  -0.88 percent

Health Care (NYSEARCA:XLV):  +0.29 percent

Consumer Staples (NYSEARCA:XLP):  +0.12 percent

Bottom line: Earnings reports continue to fuel the ongoing stock market rally, which — according to Nouriel Roubini (a/k/a Dr. Doom) — could go on for another year or two before the next crash.

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

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