Stocks surge despite sequestration threat

The Dow jumps 175 points and is nearing its 2007 closing high as investors ignore the budget battles and focus on better economic reports. Health care is one of the top sectors this year.

By Charley Blaine Feb 27, 2013 4:58PM
Medical doctor © tetra images, Getty ImagesUpdated: 6:12 p.m. ET.

"Sequestration? What's that?" investors seemed to be saying Wednesday.

Stocks surged higher for a second straight day. They recovered all of their losses from Monday, and the Dow Jones industrials ($INDU) closed within about 90 points of their all-time closing high set in 2007.

In fact, the sectors of the market that seem most vulnerable to spending cuts set to go into effect on Friday were among the market's leaders: health care and defense.

Health care is one of the top-performing sectors this year. The Health Select Sector SPDR (XLV) exchange-traded fund is up 8.95% this year, trailing only the Consumer Staples Select Sector SPDR (XLP) ETF, which is up 9.1%.

The sector's gains came as the Dow finished with a gain of 175 points to 14,075. That's 89 points below its highest close: 14,164.453, set on Oct. 9, 2007. The Standard & Poor's 500 Index ($INX) was up 19 points to 1,516. It is within 49 points of its 2007 peak. The Nasdaq Composite Index ($COMPX) had gained 33 points to 3,162. It's still 10% below its all-time high, set in March 2000.

The Dow has gained 291 points in the last two days, easily recovering all of its 216-point decline on Monday.
Thanks to the rally, the major averages are now higher for February. The Dow is up 1.6%, with the S&P 500 up 1.2% and the Nasdaq up 0.6%. For the first two months of 2013, the Dow is up 7.4%, while the S&P 500 is sporting a 6.3% gain and the Nasdaq is up 4.7%.

Several factors have pushed the market and health-care issues higher:

The Federal Reserve is keeping rates low
The central bank is definitely is not pulling back on its policy of quantitative easing. That's the policy of selling short-term Treasury and mortgage-backed securities to keep long-term interest rates low.

Chairman Ben Bernanke defended the policy forcefully on Tuesday and Wednesday, even as Republican critics decried the policy as hurting the economy and leaving it vulnerable to inflationary pressures.

Sequestration is baked into markets
Investors know that it will be some time before sequestration -- the automatic spending cuts required under the 2011 budget deal -- begin to take a real bite out of the economy.

A month at the least, and maybe longer.

The big action will come as the White House and Congress negotiate over a continuing budget resolution. There's a chance House Republicans will try to force a partial shutdown of the government and possibly a default on U.S. debt.

The economic data have been decent
Pending-home sales jumped in January more than forecast, according to a report from the National Association of Realtors on Wednesday.

That added to data showing a recovering housing sector -- even if the sector is nowhere near at real recovery yet.

Orders for U.S. durable goods, excluding transportation equipment, climbed in January by the most in a year, That fact presumes companies are planning to expand capacity as they look beyond the federal budget impasse.

Health care is defensive, but 'growthy'

A lot of investors are buying into stocks out of fear they've missed the big rally that began in mid-November, says Alec Young, global equity strategist at Standard & Poor's Corp.

But they're a bit wary of going into more volatile sectors, like technology.

Health care works because it's relative stable: Everybody needs it. But Young added that health care is the "growthiest" of the S&P 500's four defensive sectors, which include telecommunications, utilities and consumer staples stocks. Health care includes biotechnology, medical equipment, health insurers, pharmaceutical makers and hospital operators.

The best performers in the 500 health care sector this year are Celgene (CELG), up 28.8%, and Boston Scientific (BSX), up 28.3%.

Wednesday's big gains were probably a big surprise to many investors. Many have been expecting the market to pull back from its recent highs if only the gains in 2013 have come so suddenly. On Feb. 27, 2012, the Dow was up 6.25%. In 2011, the gain for the blue chips was 5.6%.

The typical guess is that market is due a decline of 5% to 7% from current levels.

The rally was broad. Advancers were ahead of decliners 3-to-1 on the New York Stock Exchange and 2-to-1 on the Nasdaq.

But there was one noticeable laggard: Apple (AAPL), down $4.40 to $444.57. The price decline probably is a sign of unhappiness that Apple didn't offer shareholders a bigger dividend or stock buyback plan at Wednesday's annual meeting. The stock is down nearly 37% from its peak in September.

One shareholder at Wednesday's meeting complained to CEO Tim Cook about the stock price decline. "I don’t like it either,” Cook said. "The board doesn’t like it. The management team doesn’t like it."

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72Comments
Feb 27, 2013 5:40PM
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It is quite simple. We the people are sick of big government and especially big government spending money we do not have. I want to see some real cuts.
Feb 27, 2013 5:19PM
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The public doesn't care much about sequestration. It's a politicians party just like immigration reform that no one wants with the exception of  illegals and their Latino relatives.
Feb 27, 2013 5:37PM
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This market is up stricly on Bernanke, Pending home sales mean just that, pending.  When they are actually closed then it counts.  A lot of the excess inventory is being bought by investors for rental or Section 8 property. A lot of building starts right now are also investors building apartments because people no longer qualify or can't afford to purchase.  The banks aren't loaning because they are taking Bernanke's printed money and pumping up commodities, not loaning it out.

 

The sequester is just a political game for show, just like gun control and immigration reform.  Never mind who is behind the consumer prices going up, unemployment rising and wages stagnating the important things are what the compliciant lapdog news media tells you 

Feb 27, 2013 6:16PM
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It's really very simple, We The People, are sick and tired of the political posturing and positioning and miscellaneous other political bull$hit that has gone on during this, the prior and several other administrations.  We the people would like to have, perhaps demand is a better word, these people that were elected to go to Washington and DO OUR BIDDING, get off their podiums and get off their collective a$$e$, get to work and produce some actual meaningful, measurable results that benefit We The People!  Get out of bed with Wall Street and the lobbyists, stop campaigning all the time and do your jobs!!
Feb 27, 2013 5:28PM
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Stocks surge because Bendover Bernanke is going to keep giving Wall Street and the Big banks welfare while he trades from the inside.  Never mind the middle class is going broke, as long as Bendover keeps giving the Banks and Wall Street money to run up commodities and make a profit  who cares.

 

Between the housing bubble and the speculation that created high gas prices the banks crashed the economy in 2008. It only took them five years to do it again.  Obama reappointed him and the Senate confirmed him, its time for the President fire Bernanke and appoint someone else.  Of course that won't happen because they all have their hands in the cookie jar.

Feb 27, 2013 5:19PM
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The big pump up before the big implosion
Feb 27, 2013 5:33PM
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Pretty sure everyone breathing and thinking recognized a stupid Wall Street parlor trick today. Borrow from the Fed while Bernanke is lying about his progress to Congress. 175 points of utter disaster for Main Street. Looks like we'll be eating fat financiers soon. Maybe they'll make good mystery meat for those IKEA meatballs. Heaven knows, we STINK with crappy financiers. Time to thin the herd.
Feb 27, 2013 7:44PM
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If you took away the billions of dollars in fake money being pumped into supporting a fully manipulated stock market by Ben Bernanke then the stock market would look like the rest of the fundamentals -- terrible.

 

JC Penny is going belly up. Sears is going belly up. HP is in terrible shape. JP Morgan is laying off 4,000 people. In housing the numbers are all grossly distorted lies. And we are looking at a sequester in just 72-hours. And the DOW SOARS.

 

Does anybody see a dis-connect here? 

Feb 27, 2013 5:28PM
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This is a prime example of why Wall Street continues to live in their fantasy world. They pay absolutely no attention to what is taking place in our country economically or the plight of the average American Consumer on Main Street and the way they are struggling to make ends meet. Sooner or later, the big bubble will burst and then it will be everybody else's fault. I cannot wait until the big walls come crashing down around them. These people need to be taken down a few notches.
Feb 27, 2013 5:37PM
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that's cause the whores have to cash-in before the **** the fan
Feb 27, 2013 5:20PM
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And how might have the market done if Bumbling Ben had not guaranteed additional money printing to rop up the market and if the traders had read the WSJ article that new hoiusing market is being raised by easy credit and home builder discounts and financing deals.  Can you say 2007 again?
Feb 27, 2013 8:31PM
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The average American has absolutely no easy access to Ben Bernanke's virtual money -- only the banks and the stock market.The banks get these continuing bailouts for free, while the average American pays interest on free money. The stock market  is a complete joke. The average American has been completely cutout from any benefits of the these bailouts. And the DOW SOARS.

Feb 27, 2013 7:10PM
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Our elected leaders have created all of this countries mess, not the average person trying to make a living.
We may have been better off using the military along the border instead of in Vietnam, Iraq and Afghanistan.


Feb 27, 2013 8:00PM
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Who cares about a lousy $85 billion a year in sequestration when the FED's printing $85 billion a month to prop up the banks and keep interest rates down. I'll worry about those on defense welfare, NASA and NSF welfare and other forms of welfare after banks start paying me interest on my deposits instead of the banks living off the FED's handouts. We need a lots less defense handouts and free student loans and a lot more investing of capital by the big banks and businesses.
Feb 27, 2013 8:42PM
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Young people take heed!  The politicians want to butcher Social Security.  It’ll be worse for you if the Chained CPI is implemented. 

The politicians need to get serious about cutting spending.  Relying on income from Social Security to pay for government programs is fraudulent.  Cuts to Social Security benefits will increase the amount of money available for the government to spend on more programs that are frivolous and unnecessary.

Social Security does not add to the deficit.  There has been an annual surplus every year since the early 1980’s.  There is almost 3 trillion dollars in the Social Security Trust Fund.  The US government does not subsidize this Fund; but it does borrow from this fund.  In order to increase the amount of money that the government can borrow from this fund, the government wants to cut benefits for retirees.  Calculating cost-of-living increases using a Chained CPI will reduce monthly benefits for current and future Social Security beneficiaries.

Young peoples’ future benefits will be more affected by the use of a Chained CPI than current beneficiaries.  The Social Security wages accumulated each year are indexed for inflation; so, the total lifelong earnings for a young person will grow slower under a Chained CPI than under the current index.  A person in their 20’s and 30’s will probably lose at least 15%-20% of accumulated wages by the time they are ready to retire.

Don’t let the government make drastic cuts to Social Security; only minor changes are necessary to make it more solvent for future generations.  Government debt resolution should not be put on the backs of current and future Social Security beneficiaries.  The Social Security system is strong and should not be used as a “cash cow” by the US government.

Feb 27, 2013 8:43PM
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Foreclosures are still going through, cpi is a disaster, and the banks are still getting cheap $. They don't need the mortgages to be paid now that the gov't owns almost all of them. Freddy and Fannie are in such bad shape default is almost a sure thing. So when the gov't runs out of borrowing power and the fed hits the printing wall interest rates will skyrocket and that will be all she wrote. This time the banks will fail and there will be nothing we can do about it. Get out of the dollar and into hard assets, and for Gods sake learn to grow some food or fix something you will need it
Feb 27, 2013 7:31PM
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I really have to wonder how much longer we'll have cheap easy access to money.

 

I'm just a middle class schmuck, but I'm inundated with credit card offers and balance transfer options on existing cards.  I get at least 2 or 3 a week. All these offers are basically the same.  They ask 3% up front (in the form of a balance transfer fee) in return for a 0% loan for one year.  This translates to a 3% loan for one year.

In summary, banks are screaming to lend me money they borrowed at 0% and want to lend me at 3% (I have a decent credit rating because I'm careful with my money).

So, I conclude that the lower the interest rates, the high profit for banks.  After all they borrow money at 0% (even your savings account pays 0% !) and get returns ranging from 3% (from me, the schmuck) to as much as 24.99% from those who don't pay their credit card balances off in full each month.

Banks need to do other things with this money borrowed at 0%.  Like drive it into the stock market.  You can see where this is going.


You can see why the Fed keeps interest rates at 0% for as long as it can.

Feb 27, 2013 8:45PM
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I actually thought that we would be rid of all the morons and idiots, after the Election was over...??

 

I see we still have a handful or so left..

Feb 27, 2013 7:17PM
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May as well let it run.  March is just 2 days away and we all know what that means - another $85 billion from Uncle Ben.  That's a ton of money to be burning a hole in our pockets.

So for now, the theme is "Buy, Buy, Buy", until it becomes "Bye Bye".

Feb 27, 2013 9:02PM
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You know our GOV. is to big whhen a "tid bit" of lesser spending by them will result in mass panic
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