It's still a bit early to call this pullback in stocks over, but it's starting to look that way for now.
The S&P 500 finished Wednesday just about 1% below its all-time. Wednesday's rally was driven by yet another alleged agreement among OPEC producers to scale back production. At least this time around, the news does seem have a certain quality of finality to it, so maybe this time actually is different.
The agreement does show that progress has been made between Saudi Arabia and Iran in coming to some sort of understanding, which has always been the stumbling block in previous agreements. As I've pointed out in this space before, the Kingdom of Saudi Arabia (KSA) needs higher oil prices. The KSA provides massive subsidies to its citizens in the form of state jobs and cash payments and other benefits that all have been hurt in this oil downturn. On top of all these state subsidies, the kingdom is embarking on significant new strategic initiatives to diversify its economy away from oil, and all these initiatives require money. A budget that is currently in the red will prevent these plans from happening.
On the economic front, we've gotten a couple positive data points relating to the consumer and the broader services economy. First up was the Markit Flash Service PMI for September, which came in at 51.9 versus 51 in August, posting its best gain since April. While new orders and employment were not as robust, overall activity still picked up. We will need to wait for the ISM Services report next week to get a more complete read on the services sector.
On the consumer sentiment side, we got a much better-than-expected report from The Conference Board Consumer Confidence Index. The report had solid internals along with its overall index being at its highest level since 2009! Within the report, people who stated that jobs were "plentiful" increased while folks who said jobs are "hard to get" declined. As always, healthy labor data is the key to everything.
Taking the positive consumer confidence data along with the advance in the Markit Services, we are starting to see that soft patch of data in August fade away.
Aside from the economic stats, we got a great earnings report from Cintas (CTAS) . Cintas, a "Mad Money" favorite, finished Wednesday up almost 2.5% on double its average trading volume. CTAS provides worker and building maintenance services for the health care, food service, hospitality and automotive industries, to name just a few, and is a great gauge for the health of the service economy. Given the solid top- and bottom-line growth Cintas has shown for several quarters and its raised guidance for 2017, it's clear that its business demand is strong.
Putting together the solid earnings report from CTAS with the other positive consumer and services news we've gotten, it's not surprising that stocks are drifting back up to their highs. We still have lots of data to come this week and a heavy slate of data next week, with nonfarm payrolls capping everything next Friday. All in all, the market looks to be in pretty good shape as the risks of a Deutcshe Bank (DB) failure and an oil collapse both seem to be fading. With that said, anything's still possible, but as major headline risks fade away, so do the bears.