Stocks Stage Shocking Rally: Here's What You Need To Know

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Photo: Philo Nordlund via Flickr

Wait! The news was bad today. Why weren’t stocks down? We don’t know, they just weren’t.But first, the scoreboard:

Dow: +22
NASDAQ: +17.71
S&P 500: +3.7

And now the top stories:

  • Wednesday got off to a very weak start in Asia, where the Nikkei fell 1.6%, kissing goodbye to 8,900, and the Shanghai — which has been a pillar of market strength of late — losing 2%. Things were unusually quiet on the BoJ-yen intervention rumours, though we’re certain they’ll pick up very soon.
  • Europe actually bounced in the early going, mainly thanks to a strong report form the German Ifo Institute survey, showing a rebound of business confidence in July. The S&P downgrade of Irish sovereign debt — which occurred yesterday evening — didn’t really have that much of an effect, although spreads between Irish yields and German yields did hit an all-time high (though the bull market in Bunds [much like the bull market in Treasuries {more on that later}]) was a major cause of that particular blowout.
  • Things were looking a bit saggy early on, and then the market got hit with a 1-2 punch of bad macro data. Both durable goods orders and new home sales came in WAY worse than expected. Of the two, the durable goods weakness, which actually showed contraction, was probably the most alarming, given its obvious relationship overall economic output.
  • Not surprisingly, stocks tanked on the news. Treasuries rallied again, with 10-year yields heading toward 2.40, and the spread between 2y and 10y falling below 200 basis points, a flattening that’s just crushing anyone that’s put on a steepener trade.
  • But! It seemed the bears kind of tired out a bit, and the fact that stocks failed to fall even 1% on the bad data was a faint glimmer of hope for the bullish persuasion. The lack of follow-through in key “risk off” indicators like the yen also seemed to indicate that for now the negativity had gotten overdone, and thus it actually wasn’t that surprising that stocks ended in the green. One other major winner was gold, which is quietly edging back towards all-time highs.
  • Of course, pitfalls abound. Tomorrow we get weekly claims. Watch for a reading above 500k (!) and Friday is the big one, with a speech from Bernanke and the GDP estimate revision.

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