US Equity Markets Push Higher after Stress Tests for Private Banks; S&P 500 Breaks above 1400

Equity markets finished higher for the 5th week in a row after the US Federal Reserve upwardly revised its forecasts for the global economy and allowed some private banks (JP Morgan was one) to raise its dividend payouts after successfully passing stress tests.  JP Morgan stock (JPM) saw a massive rally of nearly 9 percent during the Friday session, pushing the financials section of the S&P 500 nearly 6 percent higher.  The other major stock mover was Apple (AAPL), after the release of its newest version of the iPad.  The stock saw gains of 7.5 percent and surpassed the $600 mark for the first time in company history after the release.

In all, the S&P 500 gained 2.4 percent for the week and closed above 1404, its new yearly high.  Prices are now seen at their highest levels since the middle of 2008 and markets have posted a positive close in all but one week so far this year.  The Dow Jones Industrials were also higher by 2.4 percent, gaining 310 points for the week and closing above 12232.  The rallies are being fueled by the optimism created by positive macroeconomic data and the successful performance of official stress testing for private banks.  This is also being supported by the positive outlook from the Federal Reserve, which made comments relative to the employment market and its ability to create economic growth for the rest of the year.

Looking at the longer term picture, equity markets in the US have closed higher for three years in a row (working from the credit crisis in 2008) as low global interest rates are helping support macro data and corporate earnings continue to surpass analyst expectations.  The S&P 500 is up nearly 30 percent from its October 2011 lows, and up 12 percent since the beginning of 2012.  The first quarter of this year has shown the strongest performance since 1998, with plenty of room to extend to its all time highs of 1565, seen in October of 2007.

Individual sectors are showing that financials have had the best returns during the rally, followed by industrials and tech companies.  The only negatives were seen in utilities, which have dropped 0.5 percent during the same period.  Looking ahead for the next few weeks, we will see less in the way of corporate earnings reports, so markets will be more likely to trade off of macro releases, with retail sales figures and industrial production numbers likely to get the most attention.

Technical Analysis:


The NZD/JPY is one of the main gauges of risk sentiment and the pair is currently pushing to significant long term resistance at 68.80.  A break here confirms the bull trend is alive and well but we prefer to wait for pullbacks before getting long, as this will improve risk to reward ratios for longer term positions.

The S&P 500 has risen to new yearly highs, breaking significant psychological levels above 1400.  Here we will pull out to the monthly charts to find the next resistance levels, which are now seen at 1440.  Given how close this level is, preferred strategy is contrarian, as downside risk outweighs upside potential. Momentum is still bullish, so keep stops tight, above 1450.