STOCKS FINALLY RALLY: What You Need To Know About The US Market Overnight

Snowboarders sochi olympicsREUTERS/Mike BlakeSnowboarders sail off jumps during snowboard slopestyle training at the 2014 Sochi Winter Olympics in Rosa Khutor, February 3, 2014.

The global market sell-off has finally stopped. For now, at least.

First, the scoreboard:

  • Dow: 15,444.5 (+71.7, +0.4%)
  • S&P 500: 1,755.1 (+13.2, +0.7%)
  • Nasdaq: 4,031.5 (+34.5, +0.8%)

And now the top stories:

  • The U.S. markets didn’t recover their more than 2% losses from Monday. And they’re still down 5% for the year. But today’s rally was nevertheless a welcome rally.
  • The Congressional Budget Office published their new 10-year outlook for the budget and the economy. “[T]he deficit will total $514 billion in fiscal year 2014, compared with $1.4 trillion in 2009,” they wrote. “At that level, this year’s deficit would equal 3.0% of the nation’s economic output, or gross domestic product (GDP)—close to the average percentage of GDP seen during the past 40 years.”
  • According to new Census data, U.S. factory orders declined by 1.5% in December, which wasn’t as bad as the 1.8% drop expected by economists. Excluding transportation, order increased 0.2%.
  • JP Morgan’s Tom Lee remains optimistic about stocks. “There are a multitude of factors that have contributed to this slow start (including EM stress, position squaring, and a recent softness in the economic data), but ultimately the key question is whether stocks face further weakness or whether this relatively weak start presents a buying opportunity,” said Lee in a new note to clients. He sees six reasons why investor may want to buy stocks now: 1) interest rates are down, 2) hedge funds have already de-risked, 3) Q4 earnings have been stronger than expected, 4) individual investors are close to capitulation according to AAII data, 5) gas prices are down, and 6) high yield bonds — a leading market indicator — are outperforming. Lee has a 2,075 year-end target for the S&P 500.
  • Lee’s third point is an interesting one. Earnings are the mother’s milk for stocks, but earnings growth expectations had been tumbling for months as stock prices surged. It wasn’t until earnings growth expectations turned positive this year that stocks started to fall. These irrational markets can be quite cruel.

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