We are less than 2 percent from four-year highs in the U.S. stock market. Three-month highs in the S&P 500 index, better than 10 percent off the June lows.
Can we break out even more? The four-year closing high in the S&P 500 was 1,419 on April 2; that's only 25 points away.
For that to happen, a very important rotation needs to take place: Out of dividend payers (telecommunications, utilities, and pharmaceuticals) and other defensive names, and into the global growth names (materials, energy, industrials) and financials.
Those dividend payers have been market leaders for much of the year. Since the beginning of August, however, that leadership has inverted: The leading sectors this month are consumer discretionary, technology, materials, and financials. The dividend payers — health care, telecom, and utilities — are either flat or down for the month.
Europe: The Monti/Draghi axis is ascendent. Much of the gains in the U.S. markets are due to more stability in Europe. Four-month highs in Germany. The euro bouncing off its two-year lows in July.
The next European Central Bank meeting is Sept. 6. Yesterday, The Wall Street Journal had an interview with ECB Governing Council member Ardo Hansson (the head of the Estonian central bank) where he said that purchases made by the European bailout funds (the European Financial Stability Facility and the European Stability Mechanism) could be "substantial" and "sustainable." What about objections from the Germans to making such purchases? Mr. Hansson said, "In the end, everyone has one vote." There are 23 members on the ECB board.
1) The Reserve Bank of Australia left interest rates unchanged (3.5 percent) ... more importantly they said China's growth was “not slowing further." That is significant: China is Australia's biggest trading partner, so they know about the Chinese economy. The Australian dollar , a bellwether of commodity demand, near a five-month high.
2) The drought: Tyson's CEO said, "Grain costs have been increasing significantly and rapidly, largely as a result of the ongoing U.S. drought."
That drought is one of the reasons the fertilizer business continues to grow. CF Industries CEO Stephen Wilson: "Global population growth, a shift toward higher protein diets, and continued use of crops as a source of renewable fuels are all generating a need for more grain and higher use of plant nutrients. Additionally, the increased production of North American shale gas and the associated decline in natural gas prices have created a sustainable cost advantage for the company's nitrogen production."
4) Weaker second-quarter economy hurts gaming. Caesar's Entertainment CEO Gary Loyeman: "After a strong first quarter, difficult economic conditions led to lower visitation in several regions, impacting our core operating results in the second quarter." Caesar's went public (again) in February.
—By CNBC’s Bob Pisani
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