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Rally Grinds On, Despite Disappointing GDP

Adam Jeffery | CNBC

Despite today's disappointing GDP, the market uptrend remains intact.

The S&P 500 got within one point of its historic closing high (1,593) yesterday. The bottom line is that despite all the worries (Europe recession, China growth slowing, March economic weakness in U.S., etc.), the U.S. stock market has gone almost straight up since the beginning of the year. The two "pullbacks" that occurred at the end of February and the middle of April were shallow, two percent affairs.

One reason the markets have held up so well: healthy rotation. This week, cyclicals (materials, energy, industrials) have outperformed defensive (consumer) names after several weeks of the opposite trend—the Cyclical Index is up 2.9 percent this week, the Consumer Index up 0.1 percent this week.

Strange week for those of us who watch the markets. We have had two separate events that go to the credibility of business news (the hack of AP Twitter's account) and the reliability of the markets (the CBOE software glitch yesterday).

This isn't a CBOE issue alone, it's a market issue.

These kinds of glitches happen every day, it's just that most of them are small and go unnoticed. This is what happens when you have highly complex and interconnected markets. It's a natural component of the new market infrastructure. As markets become more automated and more dependent on technology, and more complicated (there's over a dozen stock exchanges) ... the risks magnify exponentially. So you have to learn from the things that happen, and the trick is how do you learn from them?

One thing is for sure: The market is more complex than ever, and more fragmented ... but is it too complex Too fragmented?

Find out exactly what happened at the CBOE when I interview CBOE CEO William Brodksy on our air at 10:35 a.m. ET, first on CNBC.

Elsewhere:

1) Home builders rally pre-market, looking to extend this week's big gains. D.R. Horton rises 7 percent, set to open at a multi-year high, after beating on the top and bottom line and posting a 34 percent jump in second-quarter orders. Builders PulteGroup, M/I Homes, Ryland Group, and Meritage Homes have all reported stronger-than-expected earnings this week as housing continues to improve. The iShares U.S. Home Construction Index Fund exchange-traded fund is up 8.2 percent this week—poised for its biggest weekly percentage gain since late June.

2) Exchange-traded funds continue to attract assets, and it shows in the earnings report of WisdomTree Investments, which reported in-line earnings of $0.06. Revenue went to $29.3 million from $19.1 million for the same period last year. They have had spectacular success with its Japan Hedged Equity Fund, which led the entire ETF industry last quarter with $3.9 billion of net inflows.

Partly on the success of the DXJ, the stock has also had a spectacular start to the year, almost doubling from $6 to $10.89. WETF is the fifth largest ETF provider, with $27 billion in assets.

By CNBC's Bob Pisani

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

Wall Street