Market Talk

US stocks rally, as earnings reports from Lennar and Bed Bath & Beyond spark consumer discretionary, Treasury closes out a record week of bond sales, and Congress spars with Bernanke over the BofA-Merrill deal.

DJIA jumps 173 (2.1%) to 8472, S&P 500 rises 19 (2.1%) to 920, Nasdaq Comp gains 37 (2.1%) to 1830. S&P weathers early test of support around 900 level, which sparks rally. After the last two week’s selling, it’s all the excuse the pros need. Buying risky assets is back on elsewhere, too. Crude shoots up also, back over $70/barrel.

Weekly jobless claims unexpectedly rise, and final reading on 1Q GDP shows economy contracted at 5.5% rate, down from earlier 5.7% reading.

Video wrap’s here.

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Bull markets consist of two phases: policy and earnings-driven rallies. The recent three-month run-up can be described as government-induced gains, but whether stocks are ready to move to the next phase is certainly debatable.

Carmine Grigoli, chief investment strategist at Mizuho Securities, says stocks initially jump even as earnings fall but policies to spur recovery are put in place. Then comes the earnings-driven stage of the bull market.

Recent sideways trading means earnings season will be crucial for stocks. From Grigoli:

Until the dynamics of a sustainable profit recovery become apparent, investors may lack the fundamental motivation to drive stock prices meaningfully higher, and the best that can be expected is a period of consolidation. Suspended in time and space, the bull market may be stuck in the financial equivalent of The Twilight Zone.

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Not much for green shoots theorists to be enthusiastic about regarding this morning’s weekly jobless claims data.

Initial claims rose 15,000 to 627,000 in the week ended June 20, while economists had expected a drop to 605,000. The surprise gain, which brings claims to the highest level since May 16, was due in part to larger-than-expected layoffs in the education services sector, the Labor Department said.

Increased attention has been placed on weekly jobless claims data recently because it’s generally a fairly reliable signal of recession bottoms. But naked capitalism blogger Yves Smith cautions a turn to reductions in jobless claims isn’t a foolproof indicator that the economy’s ready to grow again.

“That experience has been for normal inventory-driven downturns, not financial crises,” she says.

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So the Fed sounded “optimistic” yesterday, as optimistic as any bank could after having flooded the economy with more money than any central bank in the history of central banks.

That’s some optimism.

And what have they gotten for their efforts? Three straight quarters of contracting gross domestic product, with a fourth on the way, a job market that’s nearing a 10% unemployment rate, and is even worse when you consider the part-timers, temps, underemployed, those whose salaries were frozen, or hours cut, or wages cut. A housing market where sliding prices of 10%, 20% are considered normal, after decades where home prices never dropped.

The fact is that central banks the world over have thrown money into their economies like it was a spectator sport, and all it’s done is prevent the global economy from being worse.

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US stock futures dropping after weekly jobless claims rise where Wall Street expected a slight decrease, and the continuing claims rose after last week’s break.

S&P 500 futures down 5.80, after being up slightly before the data. DJ futures down 47. Ten-year down a tick, yield at 3.69%. The indexes are all sitting around important psychological and technical levels, so any drop has, given recent volatility, the potential to turn into a stampede.

Initial jobless claims rose 15,000, to 627,000; the Street expected them to drop 3,000. Continuing claims rose 29,000 to 6.74M. Continuing claims dropped from their record level last week. The moves aren’t huge, especially among a work force of 159M some-odd (and getting smaller every day!) But any move higher and away from the 600,000 level on the initial claims underscore just how weak the economy remains.

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