Tuesday, October 21, 2014

Best day for stocks in 2014 because Coke, IBM and McDonald's all whiffed on earnings

Wait, that doesn't sound right?

Maybe companies like Coke, IBM and McDonald's aren't representative enough to gauge what's going on in the global economy?  No, that's exactly why they represent 10% of the Dow Industrial Average.

So if America's largest industrial companies are showing signs of distress how do we explain today's buy everything strategy?

I alluded to the drivers in the morning but here's my summary:

* Stocks were weak after the release of questionable Chinese GDP data.

* Suddenly a rumor emerged in a Reuters story that the ECB could begin buying bonds again.

* This rumor was quickly refuted in the Financial Times but the damage was done as stocks were now above technically important levels.

* This led to further program buying throughout the day which never relented.

So to recap, stocks fell 9-10% to begin the month on fears that the global economy was faltering (seems to be evidenced in reports from IBM, Coke, McDonald's and others).  A steady stream of leaks and rumors from the Fed, and the ECB have sparked stocks and caused them to soar 7% not in a year, quarter or month but in the past 4.5 days.

As Goldman Sachs noted tonight - "has the market, like the hare in Alice in Wonderland, gone mad?"

We shall see.

Cheers.

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