Market Talk

Abbondanza!

US stocks close out their best July in years with a quiet session, after initial reading on 2Q GDP comes in showing a narrower than expected contraction.

DJIA rises 16 to 9171, up about 8.6% on the month; it’s the Dow’s best July since 1989 and its best month since 2002. S&P 500 gains less than 1 to 987, up 7.4% in July and capping off its best five-month spurt since 1938. Nasdaq Comp down 6 to 1979. (Video recap here.)

This three-week rally has been impressive, but has been bolstered by low-ball earnings estimates that were easy to hurdle. If the market’s going to continue its run, it’s going to have to do the tough work now.

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Get up mule, we got inventory to restock.

We hear there’s a big inventory restocking coming, and that will help end this dog-gone recession, economists say, with almost complete uniformity.

After all, there’s been massive drawdowns in inventories and businesses must restock, we’re told. Perhaps that’s so, but inventories need to be shipped, and from what we’ve heard from freight haulers lately, things are pretty quiet and expected to stay that way.

Yesterday, YRC Worldwide (YRCW) — among the nation’s largest trucking companies — said freight-hauling tonnage in its national network was down 39% vs a year ago. Now, some analysts say YRCW’s problems stem from more than just a bad economy, and peers are doing better, which may be true. JB Hunt (JBHT), for instance, didn’t log volume declines nearly as sharp as YRCW. Continue reading…

Historically speaking, some day I might be able to afford meat again.

After yesterday’s weekly jobless claims, we again heard the saw that once claims peak, the recession’s end is near. It’s one of those historical lessons people latch onto, no matter whether or not it fits the current pattern. And we’re not so sure just how well it does fit the current pattern.

Conventional wisdom holds that once weekly jobless claims peak, the recession’s end is near. But conventional wisdom hasn’t done so well this business cycle.

“To be sure, when jobless claims roll over from their peak, the end of the recession is never very far behind,” Gluskin Sheff’s David Rosenberg writes. “We can buy that. But this was no normal recession, nor will it be a normal recovery.”

Claims are down about 13% from their March peak, he notes. But typically they are down 20% by now, and 30% “is not uncommon.” At this rate, it will be another 4-5 months before claims break decisively below the 500,000 threshold, he says.

That, he adds, is “the point at which we should start to see employment stabilize or perhaps even begin to expand (though not likely enough to prevent the unemployment rate from making new highs.)”

No, no, it's very lovely, I'm just, you know, broke.

So 2Q GDP came in not quite as bad as the Street expected, still showing an economy in recession, but on the surface giving some hope to the bulls – and everybody who cares about such things, really – that the economy’s tailspin may be at least leveling off. And after that leveling off period, inevitably, a recovery must come.

We’d like to believe that, really we would.

GDP contracted 1% in the quarter, less than the 1.5% that was widely expected, and far less than the 6.4% in the 1Q (that number was revised from 5.5%; and the 4Q08 number was revised to 5.4% from 6.3%; seems like just a flip-flop of the numbers, really, but you could argue it shows the worst of the recession hit in the 1Q and not the 4Q, for whatever that’s worth.)

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Premarket US stock futures suggested bulls were antsy to build on yesterday’s gains, and close out a strong July with an exclamation point. But in what looks like a classic buy on the rumor, sell on the news move, futures fell sharply after this morning’s GDP report showed a slightly narrower contraction than expected.

S&P futures were up about 5.50 before the data hit; lately they’re down 2.30; DJ futures down 6. Ten-year higher, yield at 3.59%.

Still, Dow Industrials are up more than 8% for the month, S&P 500 up more than 7%, and best July for the broader market since 1997.

Second-quarter GDP contracted at a 1% annual rate, narrower than the 1.5% that was expected, and far narrower than the 1Q’s 5.5%. But the BEA also released its annual benchmark revisions, which showed that from the 4Q07 to the 4Q08,  the economy contracted at a 1.9% rate, as opposed to earlier estimates of a 0.8% rate.

Next week’s packed with closely watched data, including ISM, personal income & spending, pending home sales, factory orders, auto sales, chain-store sales and finally the July employment report. Rest up this weekend.