Seemingly, from out of Left Field

US equity markets are suddenly being embraced by investors as one stimulus after another provides unexpected support for stocks. Earlier in the week we witnessed a strong rebound by crude oil, fueling a resurgent energy sector. In the overnight on Wednesday we received news of stronger than expected export data out of China; the best in a year in fact. Yesterday the financials, led by J.P. Morgan’s better than expected Q1 results, fueled a strong move higher by the financial sector and a comprehensive move higher by the broader market. J.P. Morgan, Bank of America and Goldman Sachs all rallied sharply on the news. Additional lift to the market was provided by large cap names; Disney, Apple and Netflix.

All three major equity market indices gained 1% on the day yesterday closing above their 50 and 200 DMAs again. The NASDAQ notched its highest close of the year. Yesterday’s broad rally provided for a shift in equity market outlook to a confirmed uptrend.

How I see it –

Seemingly, from out of left field, investors are being treated to a series of different themes that speak to the rebirth of a risk on mentality.

To a large degree, crude oil and financials are the principle drivers this week. Both are vitally important cylinders of investor optimism. My sense is that with lowered expectations for Q1 results, the beats we have received thus far have gone a long way in lifting a market that was clearly trading on fumes. Are there legs to this week’s rally? That all depends on earnings. Thus far the “beats” have been viewed as meaningful and the guidance has acted to confirm that. It is very early in the season and though we should see plenty of S&P 500 companies beat consensus expectations, guidance will remain the key to our directional trade. Further, the likelihood of crude moving significantly higher in the near term is remote. Net-net, I remain a bit skeptical of a meaningful push higher in the near term, but still believe that the bull market remains intact. I am more than happy to see the tide rising.

flickr photo: Scott Beale