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Russell 2000 Lags on a Big Up Day

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Today's financial recap and tomorrow's financial outlook.

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The Dow Jones Industrial Average (DJI) rose 1.6% today as the market continued working off oversold levels amidst anticipation of more stimulus and some positive economic data.

European Central Bank Board member Benoit Coeuré said the ECB will start purchasing private-sector debt within a few days to support the Eurozone economy. Just yesterday, St. Louis Fed President James Bullard, who is known to be hawkish, said policy makers should consider extending quantitative easing.

September Housing Starts rose 6.3% 1,017K, slightly ahead of the 1,008K consensus. Building permits rose 1,018K, just below the 1,003K expected.

The preliminary reading for October University of Michigan Consumer Confidence rose to 86.4, beating the 84.0 average forecast.

The headlines and data helped extend the rally off Wednesday's low, and we saw continued momentum in risk assets along with a 12.2% decline in the VIX.

European markets were up big, with Germany, Italy, Norway, Sweden, and Greece all staging impressive rallies.

In the US, housing stocks, energy MLP's, industrials, and biotech stocks outperformed.

High-yield bonds also impressed, with the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) up 0.9%. Elsewhere in fixed income, Treasury Inflation Protected Securities (or TIPS) outperformed due to strength in commodities, which reduced fears of disinflation.

The major outlier was the small cap Russell 2000 (RUT), which fell 0.4%. However, it rose 5.6% from its Wednesday low to its Friday morning high, so some profit taking was in order. And for the full week, it was up 2.9% vs. a 1.0% decline for the S&P 500 (SPX).

In earnings, the big winner today was investment bank Morgan Stanley (MS), which rose 2.1% on its impressive third-quarter results. Competitors including Goldman Sachs (GS) and Deutsche Bank (DB) rose in sympathy.

Retailer Urban Outfitters (URBN) fell 14.3% after announcing that sales trends have been weak, and that gross profit margins may decrease.

Monday's Financial Outlook

Tech investors will be watching IBM (IBM) and Apple's (AAPL) earnings reports due after the close Monday. IBM should deliver some insights on the strength of the international economy, while Apple will issue the final verdict on just how strong iPhone 6 sales have been.

There are no major domestic economic reports on the calendar.

Germany will report its PPI early in the morning.

Even with the recent rally, intraday action remains volatile and traders are on edge. While risk assets are showing improved performance, the market can still be easily knocked around by headlines related to Ebola, geopolitics, and other issues.

Additionally, there are growing fears of a lack of liquidity in fixed income markets, which could mean in increased risk of some kind of of larger system shock.

From a technical perspective, the bulls would like to see the S&P 500 retake its 200 day moving average, which sits 1.0% overhead at 1906.02.

Twitter: @Minyanville

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No positions in stocks mentioned.

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