Mid-Day Update: Financials Rally, Retail Sales, Greenback

The S&P 500 is gaining nearly 1% as we approach the lunchtime hour on the east coast. The market is being led by the financial stocks as the risk-on trade is back.

Financials Rally

The SPDR Financial ETF ($XLF) is up 1.3% today to the best level since last August and is being led by big gains from Goldman Sachs (NYSE: GS), Morgan Stanley ($MS), and JPMorgan Chase ($JPM). The rally comes ahead of the release of the bank stress tests on Thursday. The speculation is that the results will allow the banks to increase their dividend payouts and buy back shares. Both scenarios will lead to more investors flocking to the sector and is why the buying has begun today.

Retail Sales

US Retail Sales biggest gain in five months with February up 1.1% versus 0.6% in January. Sales ex-autos came in at 0.9% versus expectations of 0.7%. It appears the consumer continues to chug along even as the overall view on the economy remains neutral at best. The SPDR Retail ETF ($XRT) is breaking out to a new all-time high on the news.

Greenback Rallies

The U.S. Dollar Index hit the best level in nearly two months as investors view the currency as the best of the best. The Euro continues to hit headwinds due to the sovereign debt issues, the Yen is falling with the BOJ decision, and the U.S. appears to have the best economy of the developed nations. The PowerShares US Dollar Index Bullish ETF ($UUP) was last up 0.2%.

Market Recap - FOMC Fuels Rally, Gold Surges

A nearly 1% rally for the S&P 500 has the index at the best level since late July 2011 and investor optimism is starting to override the fears in Europe. The move today has the index only 3% from a new 3-year high - hard to believe with all the black clouds hanging over the market. But as I have said many times in the past, there will always be black clouds, but not all of them will bring rain!

INTERESTING STORIES

• Apple ($AAPL) reports blockbuster earnings and rallies today on the news. The stock was up 6% to a new all-time high and is now the largest company in the US by market cap. And more amazing is that it could see another $150 on the upside before it is fairly valued.

• FOMC Meeting - Bernanke and his cohorts announced that interest rates will remain near historic lows into 2014 and that gave equities a boost. May are calling this the next round of quantitative easing or QE 2.5. Either way, low rates are good for corporations and stock valuations.

• Gold - Gold surged as the US Dollar fell after the FOMC news. More easing will lower the value of the Dollar and PowerShares US Dollar Index Bullish ETF ($UUP) fell by 0.45% today to the lowest level in over a month. This fall sent gold ($GLD) to the best level in over one month. {$GLD remains Penn Financial Groups largest holding.}

• New Highs - HOLDRS Biotech ETF ($BBH), Digital Realty Trust ($DLR), FEI Company ($FEIC), Pool Corp ($POOL), Weis Market ($WMK)
  

Market Recap - Down but not Out??

Yes the market closed in the red today after taking the lead from Asia and Europe overnight. The Dow closed down 250 points or 2.1%, but well off the intraday low that had the index off by 340 points. The S&P 500 (-1.8%) and NASDAQ (-1.7%) fared slightly better, but overall it was an ugly day for stocks.

WHY?? - I am not going to get into why stocks were down. I covered there reasons in an earlier blog post if you want to know my thoughts.

DOLLAR & COMMODITIES - The US Dollar Index ETF ($UUP) was up 0.2% on the day as its currency counterparts fell along with commodities across the board. A strong US Dollar is historically negative for commodities and that was evident today with Gold ($GLD) down 2.4%, Copper ($JJC) losing 2.9%, and Oil ($USO) off by 0.5%. The US Dollar Index hit a new 6-week high today as Gold hit a new 1-month low. There is definitely a correlation between the two asset classes. Short-term this may continue, however long-term I want to be long Gold and at a minimum flat the US Dollar.

SOCIAL MEDIA ETF HIT HARD - The shares of newly introduced Global X Social Media ETF ($SOCL) took a dive today, losing 5.2% after several of its holdings fell due to Chinese rumors/reports. Muddy Waters Research firm went after $FMCN today (-40%) as it has a number of Chinese ADRs. I have yet to determine if this firm is actually right on or simply a scam to take down companies they are short. Only time will tell. Anyway, it hurt other Chinese internet ADRs that make up the portfolio of $SOCL. Shares of Sina ($SINA), a top three holding of $SOCL was down 11% and Renren ($RENN), another holding fell 8.6%. I love the social media angle, but I would not run out and buy $SOCL today. There is too much risk, with not enough upside reward in the short-term.

DRUGS ON A DAY LIKE THIS - One of the very few bright spots today was the iShares US Pharmaceutical ETF ($IHE) with a gain of 0.75%, easily beating its peers. The iShares Utilities ETF ($XLU) lost 1.3%, also beating the overall market.



**BONUS --- Speaking of Utility Stocks. A water utility based here in the US just jumped into our top-five rated stocks on the PFG WatchList. If you happen to be a Client or Subscriber to one of our newsletters and want the name of the stock - please email info@pennfinancialgroup.com with Water Stock in the Subject Line.