Market Talk

US stocks surge ahead as the global risk trade has a big day, from India’s massive spike to crude rising back to $59.

DJIA jumps 235 (2.9%) to 8504, S&P 500 rises 27 (3%) to 910, Nasdaq Comp gains 52 (3.1%) to 1732. Financials, consumer discretionary lead the charge. Big Board volume’s low, with 5.5B shares traded, well below the 6.3B average, and we expect it will remain low heading into the long Memorial Day weekend.

That the most beaten-down sector led a low-volume rally should tell you something.

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A few points to ponder in commentary today from Wall Street economists and strategists:

Morgan Stanley economists say the firm’s proprietary business conditions index (MSBCI) “soared to new 18-month highs in early May and appeared to signal an expansion in overall business conditions for the first time in nearly two years.”

Promising, but the economists aren’t entirely convinced, and suggest the bounce may not be sustainable. Reasons for pause, they say: Price index actually decreased, as companies continued to lose pricing power; survey on capex plans “repeated April’s abysmal reading”; companies “appeared to remain extremely reluctant to expand payrolls”; and two-thirds of respondents indicated their companies plan to pare physical operations, “in a rather ominous sign for the commercial real estate market,” Morgan Stanley says. Continue reading…

The stock market’s 30% run-up throughout the last two months has been predicated on the fact that the economy has stopped plummeting and is only deteriorating at a slower pace.

But, as WSJ notes, for the road to recovery to continue, the economy will have to show some actual growth for this recent rally to have any legs.

Now, investors are starting to ask for something more. They want signs that actual economic improvement is coming. They didn’t get anything like that last week, and they began selling stocks again.

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The only thing lagging is a new job.

Honestly, it seemed like every day last week, we were writing or talking about unemployment, in one way or another, as the swelling ranks of the unemployed becomes a bigger story.

The nation has been losing better than half a million jobs a month this year; people who haven’t lost their jobs have had their wages frozen, or their hours cut back, or their salary cut down. And people who have lost their jobs are having a hard time finding new ones. The consumer is critical to the economy; if people aren’t spending, there goes your economic growth.

But, we are so often told, unemployment is a lagging indicator. Well, maybe not this time it isn’t.

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Bias for US stocks is shaded toward the upside premarket, but similar to much of last week, the early hints aren’t strong enough to divine any clear direction.

Smattering of economic data this week include a homebuilder May sentiment reading this afternoon, April housing starts tomorrow and Philly Fed May manufacturing index Thursday. Not a lot of earnings reports on the calendar, but the companies reporting this week carry a higher profile (H-P, Home Depot, Target, Dell) which may hold some currency with investors.

Seems to be more scrutiny popping up lately on the rally since March. Getting close to levels on S&P 500 where bulls need to hold, or potentially lose a lot more ground. S&P futures up 5.8; DJ futures up 49. Ten-year a little higher, yield at 3.11%.