Markets in the US continued to trade in a choppy manner as all eyes continued to focus on the outcome of this weekend’s EU summit. Headline news, continued to drive the US equity markets despite better than expected manufacturing news, that reflects an economy that was greatly affected by Japanese supply chain disruptions. Investors continue to remain reticent about taking positions into the weekend.
Stocks have continued to remain at the high end of the current trading range, as earnings in the US have been generally better than expected. Historically, the S&P 500 index stocks beat analysts’ estimates by nearly 61%. Third quarter results have been better than expected and 70% of the companies that have reported have beat street estimates.
Sentiment for stocks continue to remain mixed, and investors continue to pay a steep premium to protect against an adverse downside movement. The VIX volatility index has climbed nearly 24% for the week, after closing below 30% for the first time in 3 months on Friday. The VIX now stands near 35%, which is elevated when compared with the long term 200-day moving average near 22%.
On the economic front, US manufacturing seem to have rebounded after experiencing a significant pullback during supply chain disruptions that followed the Japanese natural and nuclear disasters in March. According the Philadelphia Federal Reserve bank the economic activity index jumped to 8.7 from minus 17.5 in October. Analyst had expected a reading of minus 9.0, The new orders index rose to 7.8 from minus 11.3, while shipments climbed to 13.6 from minus 22.8.
The S&P 500 Index was driven slightly higher by financial stocks which have exceeded earnings expectations. The large cap index has been unable to break through selling resistance near the highs made in September and October near 1230. A break will likely lead to target resistance near the 200-day moving average near 1274. Support on the S&P 500 is seen near the 50-day moving average at 1177.
