The Week In Review


Whatever concerns the stock market had on Thursday about the downing of a Malaysian Air passenger jet in eastern Ukraine and Israel's ground assault in Gaza, they were quickly set aside on Friday. The major indices snapped back to bullish attention, riding the belief these developments would not evolve into worst-case scenarios and piggybacking off strong sector leadership.

The resilience to follow-through selling efforts took hold overnight in Asian markets and it quickly became entrenched in the US when the opening bell rang. The major indices moved up at the open and held up despite some weaker than expected economic data in the form of the University of Michigan Consumer Sentiment report for July (81.3 versus the consensus estimate of 84.0) and the Leading Indicators report for June (+0.3% versus the consensus estimate of +0.5%).

This resilience likely precipitated some short-covering activity that helped drive the major indices higher. There was more to it than that though.

A strong response to Google's (GOOG 595.08, +21.35) latest earnings report, which featured another double-digit gain in revenue growth, healthy sector leadership, and a renewed surge of buying interest in the small-cap space helped fortify the bullish bias.

The Russell 2000 jumped 1.6% and the Nasdaq Composite, which dropped 63 points on Thursday, recouped that entire loss and then some with a 69 point, or 1.6%, gain. The S&P 500 added 1.0%, meaning it closed with a 1.0% move for the second straight session. Prior to Thursday, the S&P 500 had not had a 1.0% move on a closing basis in 61 sessions.

In brief, the risk aversion trade that dominated on Thursday was supplanted by a risk-on trade on Friday. That was evident in the recognition that every S&P 500 economic sector ended the day higher while gold prices ($1311.30, -5.60) and the 10-yr note (-9/32, 2.48%) ended the day lower. The clearest sign, however, was seen in the CBOE Volatility Index (VIX 12.26, -2.28), which plummeted 16% after surging 32% on Thursday.

Bolstered by a strong move in the biotech space and word that Shire Pharmaceuticals (SHPG 257.06, +3.62) accepted a $54 bln buyout proposal from AbbVie (ABBV 54.91, +1.39), the health care sector (+1.6%) outperformed all other sectors. It was followed by the technology (+1.3%), financial (+1.1%), utilities (+1.1%), and consumer staples (+1.0%) sectors. Those five sectors combined make up just over 60% of the market-cap weighted S&P 500.

In terms of the price-weighted Dow Jones Industrial Average, it was driven by gains in all but one of its 30 components. The notable laggard -- which reported earnings results that failed to wow investors -- was General Electric (GE 26.46, -0.15). IBM (IBM 192.50, +0.01), which also failed to impress with its report, increased by a penny.

A total of 744 mln shares traded at the NYSE, which was heavier than average on account of the options expiration activity. Given the broad-based gains, it should not be surprising to hear that advancing issues outlegged declining issues at the NYSE and Nasdaq by a better than 4-to-1 margin.

S&P 500 +7.0% YTD
Nasdaq Composite +6.1% YTD
Dow Jones Industrial Average +3.1% YTD
Russell 2000 -1.1% YTD