The trend for stocks continues to point up and could stay that way through the end of September, even if there are some choppy days.
Increasingly, traders have put aside talk of an imminent pull back and talk more about how fund mangers, who may have been underweight, are being forced to add to positions going into the end of the quarter. That, combined with a lack of selling pressure, has been keeping the stock market buoyant.
"When everybody was looking for a pull back, one rarely comes. Just as when everyone's looking for a bottom, one rarely comes. With less than two weeks in the quarter, portfolio managers that are behind the bench mark are going to try to chase the bench mark for the next two weeks," said Brian Belski, chief investment strategist at Oppenheimer Holdings.
Many funds are benchmarked against the S&P 500, which is up more than 16 percent quarter-to-date.
In the week ahead, investors are watching the Fed's two-day meeting; fresh housing data, and the Treasury's auction of more than $200 billion in notes and bills. There will also be a lot of focus on the activity of world leaders, who meet first in New York for the UN General Assembly, then at the G-20 in Pittsburgh. President Obama meets Tuesday with China President Hu Jintao, and also with Russian President Dmitry Medvedev and Japan's new Prime Minister Yikio Hatoyama during the General Assembly.
Stocks have gained in eight of the past 10 weeks. The Dow this past week had its best performance since July 24, gaining 2.2 percent to 9820, 50 percent above its March low. The S&P 500 rose 2.5 percent to 1068, and the Nasdaq was up 2.5 percent at 2132.
Belski said investors were wrong to make the assumption that this September would be negative since September is historically the worst month for stocks. "If you slice and dice it in a different way, you'll see that through time, the market, following a positive summer performance, on average is positive in September and positive in the fourth quarter," said Belski.
"This is the most reluctant bull market I've seen in my career," he said. Belski said among his favorite sectors is tech and sees an unfair aversion to it because of the way it acted during the internet bubble. "This is a dramatically different sector ..with respect to cash flows and balance sheets, these companies are pristine," he said.
Tech bellwether, blackberry-maker Research in Motion , reports earnings Thursday after the bell. There are a few other earnings in the coming week, including General Mills , homebuilders Lennar and KB Homes , and Rite Aid .
"The only thing I can think of on a short-term horizon that could derail the current rally would be third quarter earnings season," said Art Hogan, managing director at Jefferies. Third quarter earnings reports will start to pour in after the second week in October.
Hogan said his discussions with investors have switched recently from discussions about a pull back to discussions about putting more money to work. "It's 'I can't fight this tape.'...Maybe that's the turning point, but you certainly get that tone."
Traders also say it's positive the equities and credit markets have been absorbing new issuance. They pointed to the flood of new corporate debt this week—$3.9 billion just for Friday—and the pickup in IPOs and secondary stock offerings. Hogan said there are 21 deals coming in the next week, with 8 of those initial stock offerings.
"If you're chasing performance, you're not just chasing the end of the quarter. You're chasing the end of the year," Hogan said.
Patrick Kernan, who trades S&P 500 options, said it appears investors are increasingly making more bearish bets, but not for the very near term. "It definitely feels like the sentiment is somewhat bearish or at least protectionist. It's not like people are saying we're going to have a big dropoff, but the fear is there. We're seeing November and December put buying...not really October at all. It's almost like 'protect yourself for the end of the year," he said.
The dollar this past week continued to sink, setting a new year low against a variety of currencies, while commodities for the most part traded higher. The dollar was at $1.4702 per euro. Treasurys saw selling Friday ahead of $107 billion in 2-, 5- and 7-year note auctions in the coming week. The yield on the 10-year was at 3.476 percent.
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William O'Donnell, head of Treasury strategy at RBS, said he expects the auctions to go smoothly. "We continue to be impressed by the enormity of the flows. There are plenty of Treasury buyers around. There seems to be a rising tide of demand," he said.
Traders do not expect much discussion of the dollar around G-20, but there are expectations the group, which meets starting Thursday will look at financial markets reform and regulation. There have been reports the G-20 will talk collectively of exit strategies from the government programs that propped up financial markets and stimulated the global economy. Trade will also be a topic next week, after signs of a trade spat between the U.S. and China.
"It's not what's done that counts right now. It's what's said. I think we should expect some platitudes, and some signs that the leading countries are not at war with each other," said Marc Chandler, chief currency strategist at Brown Brothers Harriman.
Oil rose nearly 4 percent for the week to $72.04 per barrel, while natural gas jumped 27 percent to $3.778 per million BTUs. Gold was volatile, but ended the week up just 0.4 percent to $1009.20 per troy ounce.
Oil traders will be watching the U.N. mid-week when President Obama and Iran's President Mahmoud Ahmadinejad speak to the general assembly Wednesday.
More Upside from Industrials?
Economic data in the past week surprised to the upside, for the most part, and Fed Chairman Ben Bernanke encouraged investors with his comment that the recession may be over from a technical standpoint. Economists have increasingly boosted their GDP forecasts, and Barclay's economists Friday raised their forecast for first quarter GDP to 5 percent.
Manufacturing data has picked up the most, and economists look to a pickup in production to aid the economy.
From 'Fast Money':
Diane Swonk, chief economist for Mesirow Financial, said she believes some of the benefits of the increased auto production have not even shown up yet in some data. Industrial production, reported Wednesday, was better than expected at 0.8 percent, but Swonk said the contribution from autos was too low because of the way it is calculated, and the number should look even better next month. "It's a little piece of encouragement," she said.
Swonk said the Fed, in its Wednesday statement, is unlikely to take any action but it will discuss the economic recovery. "The Fed is still going to have to be hedging its bets out there. I think what you're going to get from the Fed is that there are some signs of firming in the economy, and they'll go a little further than leveling out. They'll be a little more optimistic on the economy, but the caution is going to be very high, given the headwinds," she said.
Swonk said one headwind the Fed may call out specifically in its statement is the looming trouble with commercial real estate loans. She said about $400 to $500 billion in commercial real estate mortgages need to be rolled over. Industry experts have told her that in Chicago, for instance, the majority of those properties in the Chicago area would have problems restructuring their debt because of a decline in property values. "Stuff that was 20 percent down, 80 percent financed has lost about 30 percent of its value since the beginning of the year," she said.
Lenders would be reluctant to undertake those refinancings because they would be rated too low to qualify for the Fed's commercial mortgage program. Ultimately, the solution may be that that program will have to be modified, she said.
New data on the residential real estate market is expected in the coming week. Existing home sales are Thursday, and new home sales are reported Friday. "I think we're going to continue to see buoyancy in home sales because there is the tendency to take advantage of the first time home buyer program," she said. "...The question is do we extend the first time home buyers' credit."
The FHFA Home price index is released Tuesday. On Monday, leading economic indicators are reported. Thursday's reports include weekly jobless claims, and durable goods and consumer sentiment are reported Friday.
Just a few earnings reports are expected this week, with a highlight being RIM Thursday after the bell. Homebuilders Lennar and KB Homes report Monday and Friday, respectively.
Carnival, ConAgra and CarMax report Tuesday, and AutoZone and General Mills report Wednesday morning.
Wednesday's after-the-bell reports include Bed Bath and Beyond, Cintas, Paychex and Red Hat.
3Com, Rite Aid and McCormick report Thursday morning.
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