The equity market had a striking reversal of fortune yesterday.  Modest gains registered earlier in the session evaporated in an afternoon selloff that was paced by the commodity sector and culminated in a 2.0% decline for the S&P 500.

Large declines in copper and crude futures were a focal point; naturally, those losses stoked chatter that they were a clear reflection of concerns about the economic outlook.  That line of thinking was questionable considering those concerns didn't seem to enter the conversation in the prior two sessions when the S&P 500 was in rally mode.

Accordingly, the outsized losses seen in commodities, and copper especially, struck us at first as a sign of forced selling since they didn't seem to fit with the better-than-expected durable orders data reported earlier in the day.  However, the underperformance of the Dow Jones Transportation Average (-2.9%) did mesh with economic growth concerns, so our final conclusion was that the large losses in the commodity space were not solely a case of forced selling.

Notwithstanding the hope surrounding Europe's newfound sense of seeming solidarity to prevent a full-scale banking crisis, it is fair to say growth concerns will remain a nettlesome factor for the equity market.

Those concerns have been set aside for the time being as the market has once again turned its attention back to Europe.  Specifically, it has been enthused to hear that the German Bundestag voted in favor of the expanded capabilities for the EFSF by a wide margin (523-85).

Notably, the European markets have not taken off on this news.  Instead they are mixed and treating this development as the expected outcome.

The U.S. market has grounds to do the same since the rhetoric leading up to the vote had tipped largely in favor of the measure being approved.  However, what came as surprise to the U.S. market this morning -- and a pleasant one at that -- was a report that initial claims for the week ending September 24 declined by 37,000 to 391,000.

That is the first initial claims reading below 400,000 since August 6 and it is the lowest level since April 2.  The latest reading was also better than the Briefing.com consensus estimate, which was pegged at 419,000.

The question now is: can this improvement be sustained?  There is an indication from the DOL that the data reflect a slight "mistiming" from seasonal factors.  Nonetheless, the headline improvement has given the futures market a jolt.

Prior to the claims report, which also showed a drop in continuing claims for the week ending September 17 (to 3.729 mln from 3.749 mln), the S&P futures were up about 8 points.  They are now up 17 points and trading 1.9% above fair value.

Separately, the third estimate for Q2 GDP was revised up to 1.3% from 1.0% (Briefing.com consensus 1.2%) with added contributions from personal consumption expenditures and net exports accounting for the improvement.

The stage is set for a strong open for the cash market.  After that, participants will look for internal confirmation that the opening move will persist.  The behavior of the commodities, the financial stocks, and the large-cap technology issues are likely to be focal points in that assessment.

--Patrick J. O'Hare, Briefing.com

Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.