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Street Looks To Build on Wednesday’s Late Rally As Europe Gains

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February 25, 2016

(Thursday Pre-Market) Stocks are tracking flat in early action after an impressive late rally Wednedsay. Overnight gains in Europe lent some support to the market, as did dovish remarks from a Fed speaker.

A rally in the energy sector contributed to gains in European stock markets early Thursday, underpinning U.S. stock action. Europe’s battered financial sector also showed strength, and concerns about the potential of Britain leaving the European Union weren’t as much of a factor as earlier in the week. The strength in Europe was somewhat surprising after a fall of more than 6% in the Chinese stock market Thursday. Stocks in China are down 23% year to date.

Federal Reserve Bank of St. Louis President James Bullard made remarks interpreted as dovish Wednesday night, saying further rate hikes would be “unwise.” And early Thursday, investors examined new economic data, with jobless claims coming in at 272,000 and durable goods orders for January rising 4.9 percent.

The late rally in the S&P 500 (SPX) on Wednesday took place after the index fell below its key 1900 psychological support level early in the day. The index then clawed back to finish the day at 1929.80. The ability of the market to hold the 1900 level and close above is typically considered a bullish sign. The question today is will the index close at 1930 or above.

FIGURE 1: FOLLOWING UP WEDNESDAY'S LATE RALLY?

The S&P 500 (SPX), plotted here through Wednesday on TD Ameritrade’s thinkorswim platform, fell under support at 1900 on Wednesday and then closed above that level. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Wishy-Washy Retailer Results: The last week was busy for retail earnings, and so far, companies that have reported didn't give the market much sense of direction. Wednesday, Target (TGT) reported earnings and sales that fell below analysts' expectations. A week ago, Wal-Mart (WMT) also came in with lighter profits, and lowered its sales forecast for this year. On the other hand, Home Depot (HD) issued a strong earnings report on Tuesday, and Macy's (M) beat analysts' revenue estimates. Investors will learn more about the U.S. consumer when The Gap (GPS) reports after the market close on Thursday and JC Penney (JCP) follows up Friday morning.

Gold Star: Despite Wednesday’s rebound in stocks, spot gold posted a session high of $1,252.91 an ounce - close to its one-year high of $1,260.60 reached on Feb. 11. Gold prices are up 15% so far in 2016, the best start to a year in more than three-and-a-half decades, according to The Economist. Some analysts say negative interest rates, which have been introduced in some countries, make gold more appealing.

Consumer Confidence: U.S. consumer confidence fell to a seven-month low in February, The Conference Board reported Wednesday, with the consumer confidence index dropping to 92.2 from a revised 97.8 in January. Consumers’ short-term outlook grew more pessimistic, with consumers expressing greater apprehension about business conditions and their personal financial situations, The Conference Board said.

Good trading,

JJ

@TDAJJKinahan

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