The U.S. stock market rally on Friday has driven major indexes above key thresholds, or round numbers. In the case of the 30-member Dow Jones industrial average, it rose above 13,000. And in the case of the broader S&P 500, it rose above 1400.
But anyone not impressed with round numbers has another reason to take note of Friday’s rally: It drove just about every sector within the S&P 500 out of “oversold” territory and into "neutral" territory for the first time since the U.S. presidential elections on Nov. 6, according to Bespoke Investment Group. This means that most sectors are approaching their 50-day moving averages, a technical threshold that could be interpreted as a bullish signal.
“A big push into the close today even moved two sectors -- consumer discretionary and consumer staples -- back above their 50-day moving averages,” Bespoke said on its blog. “Talk about a Thanksgiving rally!” Only utilities still lag in “oversold” territory.
This marks quite a reversal in just five trading days. The S&P 500 had been stuck in its worst selloff in months, falling as much as 8 per cent from its multi-year high in mid-September and bringing an official correction into sight. There were a lot of possible drags on the index: Europe was muddling along in recession, Apple Inc. – once one of the biggest engines for the S&P 500 – was mired in a bear-market decline and the third-quarter earnings season was disappointing because of relatively weak revenues.
However, many commentators also pointed to the looming U.S. fiscal cliff -- automatic tax increases and spending cuts if politicians in Washington are unable to agree on a budget. The cliff hasn’t been resolved, but investors appear to be betting that it will be, due to some encouraging statements from the politicians involved in the negotiations. As well, a consensus is emerging that negotiations could extend into the New Year without causing any extensive economic damage.
In other words, no doomsday.