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The bulls put a bit of an exclamation point on what is turning out to be a real joyride to the upside higher yesterday as the S&P 500 once again rallied hard without the benefit of an obvious catalyst. The rally pushed the venerable index back above its 50-day moving average and to within spitting distance (1.35% to be exact) of an all-time high.

While the rather violent "V Bottom" seen over the last 9 sessions has left many investors scratching their heads, it is worth noting that both the Dow Jones Transports and NASDAQ 100 indices closed at a new all-time highs yesterday. So, perhaps there is something more than an algo-induced blast happening here.

Recall that two weeks ago, traders were worried about all kinds of things. But, in looking at the charts below, the question that immediately jumps to mind is: What me worry?

Dow Jones Transportation Index - Daily

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NASDAQ 100 - Daily

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However, given that the entire investing world was terrified of #GrowthSlowing at the beginning of the month, the real question on traders' minds is, what gives?

Nothing to Fear But...

Tuesday's session was accompanied by several modestly positive inputs such as China's Industrial Production numbers, which triggered a 2% rally in Shanghai, an ECB official saying that there is no risk of Europe entering a Japan-style deflationary cycle, and some U.S. data that came in better than expected.

On the data front, there was some good news and some bad news. While the report on Durable Goods Orders clearly fell flat, the Conference Board's Consumer Confidence Index definitely surprised to the upside. And remember, the U.S. consumer accounts for more than two-thirds of this country's GDP. So, as John and Jane Q. Public go, so goes the economy.

The Consumer Confidence Index came in above expectations, hit its best level in 7 years, and both the Expectations and Present Situation components were positive. In fact, the Present Situation component index was the highest since February, 2008.

Why do we care, you ask? Two reasons, really. First, the report bodes well for the all-important holiday shopping season, which is set to kick off in a couple weeks. And second, the upbeat reading on consumer confidence has historically lead to an annualized gain of about 3.3% for U.S. GDP in the next couple of quarters. And the key here is that this is above current expectations.

To be sure, none of the above would normally trigger a 190-point gain on the Dow - especially after the index had already popped 660 points in just 8 days. But with the recent numbers in China showing that their economy is not exactly falling off of a cliff, the ECB saying all the right stuff, earnings in the U.S. coming in better than expected again, and the U.S. economy looking just fine, thank you, well... the only thing to fear right now appears to be is fear itself.

There is One Fear Worth Noting

On the subject of fear, there is one type that is getting a lot of press right now: #FOMO. Yep, that's right fans, it's that time of year again where fund managers begin to worry about "missing out" on the traditional year-end rally.

There have been several articles recently that have detailed the trials and tribulations encountered by hedge funds this year. According to the reports, with the exception of hedge funds managing futures (think commodities), the rest of the industry has been sucking wind this year and many big funds are underperforming badly.

So, with nothing to fear and a stock market that is on a run, managers may be inclined to just throw in the towel and jump on board the bull train. And as silly as that may sound, it has happened many, many times in the past.

However, before you run out and start levering up your holdings for the anticipated year-end run, we should recognize that the current Bullard-induced blast higher has run an awfully long way in a very short period of time. And as such, some backing and filling would seem to be in order in the near-term. Unless of course, the fear-of-missing-out simply overruns any and all rationality.

Turning To This Morning

After yesterday's impressive close in the U.S., traders were treated to some bad news. First, Facebook came out and said that expenses are going to be rising in the coming quarter. This caused traders to crush the stock in the after hours session. Next, the Department of Homeland Security announced they are enhancing security around U.S. Gov't buildings in D.C. and other cities in response to the attack in Canada and other threats. And then there was the report that the SEC itself has been releasing data to subscribers (meaning HFT outfits) early and high speed traders have been jumping on insider buying/selling filings before the data is available to the public. Oops. But then overnight, Japan's Industrial Production numbers were better than expected and the European Commission announced that they will accept both France and Italy's budgets as is. And finally, lest we forget, it's another Fed Day today as we will get the results of the FOMC's latest meeting this afternoon. It is a foregone conclusion that QEII will finally end but traders will be listening intently to the rest of the Fed's statement. And as a result, we should brace for the usual post-Fed insanity from the algo crowd. But for now, U.S. futures point to a mixed open on Wall Street.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
    Japan: +1.46%
    Hong Kong: +1.27%
    Shanghai: +1.50%
    London: +0.68%
    Germany: +0.65%
    France: +0.15%
    Italy: -0.67%
    Spain: -0.51%

Crude Oil Futures: +$0.68 to $82.10

Gold: -$1.70 at $1227.70

Dollar: lower against the yen, higher ve. euro and pound

10-Year Bond Yield: Currently trading at 2.292%

Stock Indices in U.S. (relative to fair value):
    S&P 500: -0.40
    Dow Jones Industrial Average: +15
    NASDAQ Composite: -11.28

Thought For The Day:

The future belongs to those who believe in the beauty of their dreams. -Eleanor Roosevelt

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Positions in securities mentioned: None

Wishing you green screens and all the best for a great day,

David D. Moenning
President, Chief Investment Officer
Heritage Capital Research
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