The week just ended was a good one for most risk assets, as numerous sectors, markets and asset classes rose pretty much in unison. Friday capped a run by the bulls that was variously attributed to corporate earnings and a good outcome of the European bank stress tests (though some consider it a rigged result). Whatever the reason, the SPX enjoyed a gain of more than 3.5%.
Sector performance flipped from the previous week, with industrials and materials out in front and defensive sectors bringing up the rear. The index finished above the 50 day and within shouting difference of the 200 day. In keeping with the risk rally, small caps outgained large caps, growth edged ahead of value, and emerging markets bested developed markets.
In bond land, we once again have a 3 handle on the 10 year Treasury yield and a 4 handle on the 30 year, but just barely. The 10 year yield remains in its down trend. Corporates and munis continued to rise, so “risk on” mode didn’t result in a selloff and bonds generally remain overbought. There is no fear in bond land, as they take Bernanke’s extended assurance of ultra low rates at face value. Where stock markets are looking at good earnings reports, bond markets are looking at poor economic data. Ultimately they can’t both be right.
Crude oil tracked the stock market’s gains and extended its rally, finishing the week just below the $79 level and just above the 200 day MA. The dollar, euro and gold were all nearly unchanged for the week.
Looking ahead, while stocks are overbought in the very short term, it looks like there is a tradable rally going on here. The VIX has again fallen to support and the TRIN is very neutral. Next week we get plenty of economic data and more earnings reports. Let’s see if investors continue to give more credence to the earnings. 1120 looks like a near term target for the SPX and if it gets through on a closing basis there are probably more gains in the works.