Street Vision: Earnings and Jobs Data Spark Big Rally

Stocks staged a vigorous rally Tuesday after an indecisive start to the week, as equity investors cheered steady interest rates, strong corporate earnings and bullish data on the jobs market.

Well before the opening bell, investors were greeted by positive earnings reports from 3 members of the Dow Jones Industrial Average (.DJI); Goldman Sachs (GS), Johnson and Johnson (JNJ) and UnitedHealth (UNH). These 3 blue chips finished with gains of +3%, +2% and +4% respectively. Not bad for what was basically the 2nd day of the Q3 earnings season.

An added boost came 30 minutes into trading as the JOLTS report from the Department of Labor showed August job openings hit 7.15 million, a record level since this report began 18 years ago.

Combined with interest rates leveling off at 3.15% on the 10 year treasury, well below last weeks highs, investors and traders were suddenly presented with a much more friendly backdrop than what had inspired the steep 2 day decline last week.

Stocks rallied from bell to bell, with large cap, small cap, and all sectors from technology to emerging markets, to electric utilities participating in the rally. The result was one of the most impressive days for market internals all year, as Advancing issues trounced decliners by nearly 6 to 1, and Up Volume led Down Volume by 4.5 to 1.

Major Market Averages finished with gains ranging from +2% to +3%, as the .DJI, S&P 500 (.INX), and NASDAQ Composite all regained their 200 day moving averages after trading below that benchmark during the 2 day plunge last week. While the Russell 2000 gained +2.8%, it remains slightly more than 1% below its 200 day moving average of 1620. The Russell 2000 has had the steepest decline of the major averages, declining over -11% in 6 weeks from its August 31 high of 1740.

Given, this was but 1 day of market action in what will be a blizzard of Q3 earnings and macro data over the next 2 and a half weeks. Still, combined with the relief rally from last Friday we’ve now recouped more than half of last weeks decline in the last 3 days.

After the close, the Q2 earnings parade continued with high profile reports from Netflix (NFLX), United Airlines (UAL), CSX Corp (CSX) and IBM. All but IBM traded higher after hours following their earnings, highlighted by impressive revenue gains of +11% for UAL, +14% for CSX, and +34% for NFLX.

It’s only Tuesday! The real test will be if the market can build on today’s gains the remainder of the week.

The Early Line

While Asian markets and most of Europe are playing “catch up” with the strong rally in the US on Tuesday, stocks in the US are likely to start the day moderately lower. IBM is -~4% in early trading following a shortfall in top line revenue in their Q3 earnings report, putting some pressure on DJIA futures. Netflix, NFLX; and United Airlines, UAL; are trading +8% and +5% higher respectively in response to a brighter earnings picture.

On the Macro side of the equation, we’ll get a report on crude oil inventories at 10:30 AM and minutes from the September FOMC meeting at 2:00 PM. The FED minutes will no doubt be closely parsed for any signs of concern over trade tensions and/or a higher rate environment. Regardless, expect more volatility the remainder of the week.