Some easy money from the European Central Bank helped boost stocks today, as Caterpillar (CAT), Joy Global (JOY), Bio-Reference Laboratories (BRLI) and Amazon.com (AMZN) rose.
Reuters The Dow Jones Industrial Average gained 98.58 points, or 0.6%, to 16,836.11–a record high–while the S&P 500 rose 0.7% to 1,940.46, also a record high. For those keeping track, that’s the S&P’s 17th new high this year, while the Dow Jones Industrials it its seventh.
The Nasdaq Composite advanced 1% to 4,296.23, its highest close since March 20, while the small-company Russell 2000 finished up 2% to 1,153.94.
Caterpillar gained 2.5% to $106.96, making it the biggest winner in the Dow Jones Industrial Average. At a conference last night, Caterpillar reiterated its full year guidance.
The S&P 500 got a boost from Joy Global, which rose 6.7% to $61.70. Joy Global, like Caterpillar a maker of machinery for mining, reported better-than-forecast earnings this morning.
Amazon.com rose 5.5% to $323.57, making it the biggest winner in the Nasdaq 100. Amazon rose on rumors of a 3D phone.
Bio-Reference Laboratories was the second-biggest winner in the Russell 2000 today after gaining 21% to $32.41. Bio-Reference beat earnings forecasts today.
The big news, however, was the European Central Bank, which announced a number of measures intended to boost Europe’s economy. The ECB cut its deposit rate to minus 0.1%, while offering European banks access to as much as $542 billion if they will just lend more. Oh, and the ECB is trying to figure out how it could launch full-blown, no-holds-barred quantitative easing. It wasn’t enough to cause the euro to fall today, however. Deutsche Bank’s George Saravelos explains why:
Over the last few weeks we have been arguing that to push the euro meaningfully weaker, the ECB would have to surprise to the upside in terms of the quantity, quality and price of money provided. We don’t think the ECB has delivered across these fronts much beyond what the rates market has already priced.
On price, rates were taken negative, but effectively the zero lower bound was re-affirmed, not removed. Accordingly, European short-end yields have struggled to move even lower. On the quantity of money, SMP non-sterilization was delivered, but this was close to fully priced. The defining factor is the “quality” of the LTRO, and on that front we deem the “quality” to be low in terms of genuine balance sheet expansion. It is capped at 400bn EUR, but it is unclear how much of this will be rotated from the existing LTRO versus genuine take-up. The take-up will also be staggered all the way out to the end of the year. The aggressive downgrade of the ECB inflation forecasts combined with the “optionality” around an ABS QE program suggests that the bar for large balance sheet expansion via sovereign QE is now very high. In contrast, the “package” has given a new lease of life to Euro-driven carry trades, likely to encourage more inflows, rather than outflows. Effectively, by aggressive talk and optionality but no QE-style “execution”, inflows are being encouraged without offsetting easing.
Stocks in the U.S. loved the move, of course, but the folks at MRB Partners don’t expect it to keep the rally going once the Fed gets closer to raising rates:
With the expansion now becoming more self-reinforcing, the central bank will continue to taper and begin a gradual rate cycle next year. We expect U.S. and global "high quality" government bond yields to soon resume their gradual uptrend, and for U.S. Treasury yields to lead the way higher. We also expect the U.S. dollar to appreciate versus the majors and for U.S. equity leadership to fade in relative terms. We are neutral on the equity market, but expect to downgrade to underweight later this year.
The folks at Ned Davis Research note that insiders are starting to sell:
Despite the fact that most investors feel they have no alternative to being fully invested, there is one crown of investors who has turned into pretty consistent sellers, and it is corporate insiders…an indicator that measures this, has generated a new sell signal on the market.
Time for a little caution?
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