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The decline in oil, with West Texas Intermediate closing below $80, has caused a blip down in stocks midday.
Odd, because oil initially rallied on a pair of confusing headlines:
Brent crude initially rose on the first headline, which would appear to make some sense, since the Saudis are major exporters to the Far East.
But it collapsed going into the close. Even Brent crude dropped. Huh?
I said last week that nothing is following the historic consensus. October, traditionally a down month for the S&P 500, was up 2 percent. Not only that, but we closed at an historic high for the S&P and the Dow industrials.
The "Sell in May and go away" mantra didn't work either. The S&P is up 7.1 percent in the past six months.
So, in many cases, the least likely outcome is the one that has happened.
Now, of course, everyone is expecting a big up month in November, since it is traditionally a strong month and buybacks tend to come back after tapering off in October for earnings.
The least likely outcome is that November will be a down month. Get it? All the consensus is on one side.
The double upside whammy in Japan has implications for global stocks.
The Bank of Japan announced additional purchases of government bonds, but the real market mover was the announcement that the country's Government Pension Investment Fund would put half its assets in stocks and cut its holdings of government bonds by a third.
And we are not just talking about Japanese stocks, we are talking about investing in international stocks as well, and that is why the global stock markets are up.
The GPIF is doubling its investment in Japanese stocks, from 12 percent of the portfolio to 25 percent, but it is doing the same with international stocks: doubling its investment to 25 percent.
Another tech glitch, this time with the NYSE's Securities Information Processor (SIP), which consolidates quote and trade data for NYSE-listed stocks.
According to a statement from the NYSE, the first glitch occurred at 1:07 PM ET. The SIP went down, which means that the NYSE and the other exchanges---the NASDAQ and BATS--could not exchange information on bids and offers. Simply put, they couldn't talk to each other.
Since options price off of stocks, the glitch also affected trading in options; the Options Price Reporting Authority (OPRA), serves the same function as the SIP for options, consolidating last sale information and option quotes.
At 1:34 PM, the NYSE switched to a backup system in Chicago. Normal processing resumed for quotes at that time, then at 1:37 PM normal processing occurred for trades that had been executed, then at 1:41 PM for options pricing and quoting.
NASDAQ and BATS was able to connect to the backup system shortly thereafter. No word from NYSE as to what caused the glitch, but they are planning to restore normal operation from the main data center tomorrow.
It's been popular to cheer the markets today, because on the surface it appears that we are breaking the stranglehold that oil has had on the markets.
It's true, oil is down and the major indices are up. I just wish it was a little better because there's a lot of weakness under the hood.
Problem is, the strength in the Dow Jones Industrial Average is due to the strength of Visa, which is accounting for about 130 of the Dow's 139-point gain. That's why the Dow is up 0.9 percent, while the S&P is up only 0.3 percent.
The market internals do not reflect great strength. We are barely above break-even on the advance/decline line.
What's leading this magnificent rally? Utilities, up 1.6 percent and at a record high. Utilities ETF has HEAVY volume on the upside. This looks like fears of lower rates.
Yesterday, the Fed upgraded its outlook for the U.S. economy and said it could hike rates sooner, depending on how closely the economic data improves.
That's why everyone was watching today's first look at Q3 GDP. The headline number was stronger than expected at 3.5 percent. But below the hood, business and real estate investment and personal consumption dropped.
If the consumer, business investment and housing were weaker, where was the strength? Government spending was stronger than expected, due largely to national defense expenditures.
The bottom line: third quarter growth was stronger than expected, but the composition of the growth wasn't what we were be hoping for. The Fed, I would think, wants to see a broader participation in the economic recovery. You want to see more contribution from personal spending and business in the economy.
Total (TOT) CEO this morning said he believed OPEC would support oil prices as they have in the past.
This isn't that surprising coming from the CEO of Total. The French oil giant has enormous exposure to OPEC countries. It has no footprint in North America, none.
Still, it's hard to wish lower oil prices away. The market is dealing with huge oversupply.
But it's unlikely OPEC is going to step into the market in a big way, at least not now. I say this because it doesn't look like oil prices are low enough for them to support prices now. If they act now, everyone will say, see I told you so, these guys always step into bail us out.
Besides, $80 oil is ample for most oil companies to still make—and spend—money.
I noted Tuesday that traders have come to accept that markets are almost invariably up during the two days leading up to an FOMC announcement. My informal trader poll indicates the vast majority believe the Fed will end QE3 and leave in place its statement that interest rates will remain low "for a considerable period."
They point to recent comments from New York Fed President William Dudley and Chicago Fed President Charles Evans, who have mentioned below-target inflation as a near-term risk, which would argue for continuing low rates.
That might point to a selloff right after the Fed announcement. That likely will happen, but again most traders seem to feel any dip will be short-lived.
It's a very quiet rally but breadth is 3-to-1 positive. Why the rally? This one is pretty simple: the market tends to rally in the two days ahead of a Fed meeting.
I know, it's ridiculous, but it's embedded in trader lore.
Especially under these circumstances. Traders believe in the Fed put. They believe the Fed will end QE, they will say the economy continues to improve, but they will keep the phrase that rates will remain low "for a considerable period." They will reiterate everything is data dependent.
So, slow growth and a Fed put is a recipe for higher prices.
There's another factor: after the drubbing that many hedge funds took in September-October, hedges are getting taken off and net exposure is increasing again.
Look at oil stocks, which should be flat given that oil is showing no signs of rallying. But the main oil services ETF (OIH) just took out yesterday's opening to the upside. The commodity may be flat, but they are buying the stocks.
There are lots of earnings again today, with several companies raising guidance and continuing warnings in retail land.
Sherwin Williams reported a modest beat on the bottom line, and turned in revenues that were roughly in line with expectations. The remodeling business continues to hum along, and the paint stores group—which accounts for 60 percent of sales—saw revenues increase 20 percent. The company raised full-year 2014 guidance modestly.
Parker Hannifin is another classic multi-industry company whose businesses include fluid power systems, aerospace components, refrigeration and air-conditioning components. With about 40 percent of sales outside the U.S., the company beat and raised the low end of its full-year guidance. That's notable because the current quarter is the first of its fiscal year.
Truck engine maker Cummins reported earnings above expectations, with revenue also beating analyst forecasts. Stronger demand in North America, Europe and China helped offset weakness in the Brazilian market. The company is returning 50 percent of its operating cash flow to shareholders through dividends and share repurchase programs.
The surging power of activist investors is bolstered by a growing ally: public pensions and other big institutions.
Crude oil futures fell sharply, signaling traders that the selling is not over.
The Fed gave banks more time to meet a provision in the Volcker rule that bans them from betting with their own money through investments in risky hedge and private equity funds.