The stock market had a solid day on Wednesday as August automotive sales returned to pre-recession levels.
The stock market was off to a bullish start on Wednesday after equity strategists David Bianco of Deutsche Bank and Adam Parker of Morgan Stanley raised their targets for the S&P 500. David Bianco raised his year-end target for the S&P from 1,675 to 1,750. Adam Parker raised his outlook on the S&P from his earlier forecast that it would end the year at 1,600. Parker’s forecast included a “base case” wherein the S&P reaches 1,840 in 12 months as well as a “bull case” which has the S&P at a whopping 2,327 one year from now. The news sent the major stock indices into a steady climb until they reached their “flight level” at noon.
Wednesday was the day for Light Vehicle Sales reports and strong data from General Motors (NYSE:GM) helped feed the bulls. WardsAuto reported that its final estimate indicated that August light vehicle sales rose to a seasonally-adjusted annual rate (SAAR) of 16.02 million, which was the highest level since November of 2007. Economists were expecting a less-significant increase to a SAAR of 15.8 million. Wards also noted that General Motors sold 275,847 light vehicles in August, which was the company’s highest-volume sales month since September of 2008.
The Dow Jones Industrial Average (NYSEARCA:DIA) gained 96 points to finish Wednesday’s trading session at 14,930 for a 0.65 percent advance. The S&P 500 (NYSEARCA:SPY) climbed 0.81 percent to close at 1,653. The Nasdaq 100 (NASDAQ:QQQ) jumped 1.06 percent to finish at 3,124. The Russell 2000 (NYSEARCA:IWM) surged 0.92 percent to end the day at 1,025.
In other major markets, oil (NYSEARCA:USO) sank 1.08 percent to close at $38.34. On London’s ICE Futures Europe Exchange, October futures for Brent crude oil declined 46 cents, 0.40 percent, to $113.32/bbl. (NYSEARCA:BNO). December gold futures fell $18.80 (1.33 percent) to $1,393.20 per ounce (NYSEARCA:GLD).
Transports outran Usain Bolt on Wednesday, as the Dow Jones Transportation Average (NYSEARCA:IYT) accelerated 1.34 percent.
In Japan, yen weakness continues to be the driving factor behind stock prices. The yen weakened to 99.79 per dollar just before Wednesday’s closing bell in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average advanced 0.54 percent to 14,853 (NYSEARCA:EWJ).
In China, investor enthusiasm was muted as the government decided that it was time to tighten-up on credit again. Concern that America’s military strike on Syria could escalate and disrupt oil shipping spooked investors in Hong Kong. The Shanghai Composite Index advanced 0.21 percent 2,127 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index declined 0.31 percent to end the session at 22,326 (NYSEARCA:EWH).
In Europe, the major stock indices were in a holding pattern as investors stuck to the sidelines until a decision was reached concerning an airstrike on Syria by the United States (NYSEARVA:VGK). The Euro STOXX 50 Index finished Wednesday’s session with a 0.18 percent advance to 2,758 – climbing further above its 50-day moving average of 2,739. Its Relative Strength Index is 47.44 (NYSEARCA:FEZ).
Technical indicators revealed that the S&P 500 failed to break above its 50-day moving average of 1,663 despite finishing Wednesday’s session with a 0.81 percent advance to 1,653. At this point, a head-and-shoulders pattern has now formed on the S&P chart, from the period beginning in early May through the present. (There already had been a pinhead-and-shoulders pattern running from the period beginning on July 10 through August 16.)
Its Relative Strength Index rose from 41.05 to 47.56. Although the MACD is below the zero line, it is headed back upward and is poised to cross above the signal line. If it does so, the move will be seen as an indication of a likely advance.
For Wednesday, all sectors were in solidly positive territory although the utilities sector barely squeaked in there. The healthcare sector led the group with a 1.15 percent gain.
Consumer Discretionary (NYSEARCA:XLY): +1.05 percent
Technology: (NYSEARCA:XLK): +0.97 percent
Industrials (NYSEARCA:XLI): +1.03 percent
Materials: (NYSEARCA:XLB): +0.93 percent
Energy (NYSEARCA:XLE): +0.54 percent
Financials: (NYSEARCA:XLF): +0.79 percent
Utilities (NYSEARCA:XLU): +0.03 percent
Health Care: (NYSEARCA:XLV): +1.15 percent
Consumer Staples (NYSEARCA:XLP): +0.62 percent
Bottom line: Bullish outlooks for the S&P 500 from equity strategists Adam Parker and David Bianco combined with a surge in light vehicle sales to pre-recession levels to send the major stock indices well into positive territory on Wednesday, despite increased concern about a military strike on Syria.Major U.S. indexes are now at significant resistance levels that could prove to be a major turning point in days ahead.
John Nyaradi is the author of The ETF Investing Premium Newsletter.