Domestic Data Returns Stocks Winning Ways

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U.S. equity ETFs returned to a more desirable direction today, snapping their first three-day losing streak of the year, as stocks got back to their winning ways in the face of the lingering uncertainty regarding global central bank stimulus and the World Bank delivering a downgraded economic growth outlook.

The Dow Jones Industrial Average advanced 181 points (1.2%) to 15,176, the S&P 500 Index added 24 points (1.5%) to 1,636, and the Nasdaq Composite gained 45 points (1.3%) to 3,445.

Once again, overseas action was in focus this morning as Asian markets remained volatile. Japan’s Nikkei stood out with a 6.4% loss while the yen continued strengthening.

On the economic front, Retail sales rose 0.6% in May, up in nine of the past 12 months, and above the consensus of 0.4%. The consumer side of the economy remains strong, despite higher payroll and other income tax rates this year.

Sales growth in May was driven by vehicles, which rose 1.8%, and reached its highest market share since April 2008. Moreover, initial claims for unemployment insurance fell 12,000 to 334,000 last week, contrary to expectations for a 4,000 gain to 350,000. The four-week average declined 7,250 to 345,250, down for the first time in five weeks, as the downward trend resumed.

Besides strong economic data, merger and acquisition activity helped the bullish sentiment. Shares of No. 1 U.S. newspaper chain Gannett Co soared 34 percent after it announced plans to buy television company Belo Corp for $1.5 billion. Belo jumped 28.3 percent.

All 10 industries in the S&P 500 gained. Financial and consumer-discretionary companies climbed the most, rising at least 1.8 percent. Industrials matched the performance of the S&P and transportation-related names garnered additional interest. While most cyclical sectors ended among the leaders, the technology space underperformed as major components like Apple and Microsoft ended mixed.

On the other hand, there is a global slump. Stocks in Asia plunged as Japan’s Nikkei 225 Index tumbled; hitting bear market territory as depicted by a 20% decline from previous highs. The Japanese Index is down over 21% since the high hit on May 23rd, with export-related issues selling off as the yen has rallied to a two-month high versus the US dollar.

The European equity markets finished mixed battling back from early pressure courtesy of global economic sentiment being hamstrung by the World Bank cutting its economic growth forecast. Finally, Italian stocks led to the upside, rising in the wake of a debt auction that saw strong demand, but its borrowing costs were higher.

Our Trend Tracking Indexes (TTIs) recovered from the 3-day selloff and ended higher with the Domestic TTI closing at +2.93%, while the International TTI climbed to +5.81%.

For the latest charts and momentum numbers, please refer to today’s StatSheet, which I will post within a couple of hours.

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