A Good Dose Of Optimism Lifts Stocks

The FOMC statement was non-controversial. Two issues might have moved stocks forward: an increase in the amount of Treasuries being purchased, and a more optimistic tone on the economy.

Neither happened, though on the economy the Fed did add the line that "the pace of contraction appears to be slowing."

But for once the FOMC is not really the story-instead, we are seeing a modest end-of-the-month meltup.

The S&P 500 is up over 10 percent in April and is sitting at a 3-month high. If we close here tomorrow, this will be the best month for the S&P since December 1991, when it rose 11.9 percent.

Bears who had been betting that stocks would sell off going into earnings season have been wrong so far, and some are now frantically trying to cover. Many quant funds have remained short and are badly trailing the markets.

Most alarming for shorts, the sectors that have been most heavily shorted--financials, consumer discretionary, industrials...are the biggest gainers this month, while defensive names are lagging.

Sectors this month

  • Financials up 23.8 percent
  • Consumer Disc. up 18.8 percent
  • Industrials up 18.3 percent
  • Tech up 12.8 percent
  • Materials up 12.7 percent
  • Consumer staples up 4.3 percent
  • Healthcare flat

In addition to hopes that the economy is bottoming, there are other "green shoots" today.

China: the stimulus package appears to be working. Goodyear's CEO said it was an optimistic sign that there was record March auto sales in China. Caterpillar said excavators sales in China have resumed at record levels.

Corporate bond market: loosening up, without government help. Today Goldman Sachs successfully sold $2 billion in five year notes, at a yield about 410 basis points above comparable Treasuries.

Yesterday, Credit Suisse and Northern Trust also sold bonds. All this was done without government backing.

Elsewhere, AcrelorMittal, which announced this morning that it was raising capital ($2.5 billion of common shares and $500 million of convertible notes), is three times oversubscribed, sources told Dow Jones.

If that's not enough...Wal-Mart rallying over $1 midday. I am hearing that they are speaking at a Barclays conference, saying comps have not dropped, it was the March calendar shift that hurt them and that should help this month.




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