Friday was the “witching day.” Named as such because trading is often volatile, unpredictable, unreliable and of heavy volume. The witching hour is the final hour of the stock market trading session on the third Friday of the quarter. Option and future contracts simultaneously expire and program traders rebalance accounts. The wave of unusual and automatic buying and selling often generates swings in the markets and leads to unpredictability. The end of the quarter also leads to some unpredictability due to money managers doing last minute changes to their portfolios to “dress up” performance or the appearance of the holdings. I mean what money manager would want to end the quarter without owning a biotech stock after their rocket performance? So what if they didn’t buy the stock till today!
“The market seems to be encouraged by a continued rally in Japan as well as the stronger dollar against the euro,” said Harry Michas, stock index future trader at manmarketmonitor.com.
Aside from the witching, the economy continued to give off mixed messages this week. However, the slant is becoming more positive and most economists are looking for a stronger recovery in the second half of this year continuing into next year.
The number of U.S. workers who filed first-time applications for unemployment benefits declined again for a second consecutive week last week. Note that this was first-time applicants. There is some concern over the veracity of unemployment numbers because after a while people drop off the unemployment rolls and are no longer counted. This statistic indicates that any tide of unemployment has abated and the labor market is stabilizing.
Initial jobless claims were estimated to fall by 5000. The unexpected good news reported by the Labor Department was that they fell by twice that amount to 13,000 for a five-week low of 421,000. The four-week average also declined to 432,000. Economists generally like to see this number below 400,000.
The Federal Reserve Bank of Philadelphia stated that its business conditions index moved to a 4.0 reading in June versus the -4.8 reported for May. Positive readings indicate an expansion. “The region’s manufacturing sector showed signs of improvement this month, although overall growth is still not substantial,” the bank said in a press release.
The Conference Board gave a better than expected report of its composite index of leading economic indicators. Economists were expecting a .6% increase but the index came in well ahead at 1%. Conference Board economist Ken Goldstein said in a statement that the numbers, “finally points to a recovery, almost a year and a half after the end of the recession,” Mr. Goldstein also commented that low business confidence remains a threat to better growth. “But the dangers present in the first five months of the year have not disappeared completely.”
Eight of the 10 index indicators headed up. We have the money supply growing, the dollar strengthening, consumer confidence rising and unemployment stabilizing.
There is a strong possibility for some downside profit taking and consolidation on the way to Dow 10,000. The trend is upward however and I would say that we should make it before year-end. Print this out and hang it up! (I’m not really being very bold, the horse is already halfway out of the barn.)
Marc Leavy, CFP? is a Certified Financial Planner. Principled Investing teaches Solomon’s principles of investing and offers wisdom regarding comprehensive financial planning for a fee. You may contact Marc at [email protected] or visit www.principledinvesting.org.
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