Market Talk

US stocks were off and running last night, after Alcoa surprised everybody by breaking a string of three losing quarters. They didn’t need more good news this morning, but got it anyway.

US stocks rise after the bulls get a tailor-made news flow, from Alcoa last night to retailers this morning.

DJIA rises 61 (0.6%) to 9787, and it seems like Dow 10000 is back on the radar screen. S&P 500 gains 8 (0.8%) to 1065, Nasdaq Comp rises 13 (0.6%) to 2124. Curiously, after hitting early session highs, stocks never revisited them, and even looked pretty languid through the afternoon. Not sure if it means anything, but there it is.

Stocks got a big boost from Alcoa’s earnings, then more juice after September retail sales break a string of 12 monthly declines, and weekly jobless claims slide more than expected.

And it was another day of watch-the-dollar and see everything else go in the other direction. As the dollar fell yet again, gold hit another record close and crude pierces $72, though it closed at $71.69. Still, that was up 3%. Treasurys weren’t so hot, though, after a weak auction of 30-year bonds.

I just want to capture the moment.

A positive “print,” as the smart crowd calls is, for 3Q GDP is a given, as far as the stock market and just about everybody else is concerned. But that’s growth is coming via a tremendous expense in government spending, and where it goes after that is not so easy to predict.

GDP should expand briskly over the next year, Capital Economics’ Paul Ashworth says, but it may be “the mother of all dead-cat bounces,” as GDP slows markedly again in 2011.

In a normal recovery, pent-up demand gives an initial boost to activity, which drives production, which sparks hiring, which fuels demand. “But the crucial difference this time is that the legacy of debt built up during the past two decades will constrain consumption growth for several more years.”

This is something I mentioned just this morning, actually. What is going to be the spark that drives the business cycle? Every card-carrying free-marketer will tell you it can’t be government spending (well, they may have once upon a time; we’re not so sure now. Seems, much like atheists, there are no free-marketers in a foxhole.)

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Well, it sure seemed rosy this morning. Jobless claims down, retail sales up. But over in Europe, central bankers are a bit more circumspect.

And while stocks haven’t traveled very far since their burst out of the gate, they’re still setting themselves up to make a run at Dow 1000o one of these days soon. But that’s a story for another day, right now let’s just talk about tomorrow’s news, today.

Yes, hi Lloyd, it's me again...

It’s the type of headline we typically read in the sports pages, not long before the team owner fires the head coach.

“White House: Obama Has ‘Tremendous Confidence’ In Geithner”

“Obviously, we have tremendous confidence in his stewardship and leadership,” responded White House spokesman Robert Gibbs to reports that Treasury Secretary Geithner has had frequent contact with a small cadre of Wall Street big shots.

Backing from the boss is nice, but before Tim gets too comfortable he need only look as far as former Mets manager Willie Randolph’s unceremonious dumping back in 2008.

“Willie has my support. He has ownership’s support. … I have full confidence that he’s doing everything he can to get us to play to the level of play that this team should play based upon its talent,” Mets GM Omar Minaya said, less than a week before he canned Randolph.

Geithner’s had at least 80 contacts with Goldman Sachs (GS) CEO Lloyd Blankfein, JPMorgan’s (JPM) Jamie Dimon, Citigroup (C) Chairman Richard Parsons or CEO Vikram Pandit during his first seven months at Treasury, WSJ reports.

“It’s appropriate for Treasury officials to keep in touch with those who work in the markets every day, particularly when the economy and the markets are so fragile,” said Treasury spokesman Andrew Williams, according to WSJ.

Certainly not unusual for government officials to communicate with business leaders, notes Dow Jones reporter Henry Pulizzi. ”But Geithner’s frequent contact with Wall Street may open him up to criticism, given the government lifeline that helped the banking sector weather the financial crisis.”

I see a great change in fortunes coming in your future.

It’s important to realize the stock market is telling a vastly different story than the bond market, a trend that isn’t sustainable and doesn’t bode well for one of those two groups of investors in the long run.

The Pragmatic Capitalist blog points out bond investors, who typically have a long-term investing time frame,  are betting on deflation as treasury yields falls. But equity investors are pushing stocks higher on hopes that the reflation trade is “alive and well.”

Cost-cutting has fueled corporate profits throughout this seven-month rally in the stock market, as companies have been able to exceed beaten-down expectations without experiencing top-line growth.

“But we’re unlikely to see pricing power and hence real revenue expansion without at least some inflation,” blog cautions. And declining treasury yields signaling a deflationary environment “doesn’t bode well for the prospect of corporate earnings,” blog notes. “That likely means stocks are getting a bit frothy here.”

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The storms have passed, but a cloudy forecast remains for labor market.

Better-than-expected initial jobless claims data this morning leave bulls and bears split on this slow-motion labor market recovery.

The number of workers filing for jobless benefits fell yet again, marking another positive sign for the labor market. Claims fell 33,000 to 521,000, the lowest level since early January. Economists expected claims to drop to 540,000.

Nevertheless, don’t get too upbeat as those receiving emergency unemployment compensation increased by almost 100,000 to a new record high, notes Miller Tabak equity strategist Peter Boockvar.

The evidence is clear “that companies continue to reduce the level of firings but still remain extremely reluctant to hire new workers,” he says, which is why Congress is “already discussing a further extension of unemployment insurance.”

While the stock market cheers the fact that the number of people filing for jobless claims is diminishing, claims are still in “deep-recession territory” and remain higher than at any time last year, Justin Fox writes at Time’s Curious Capitalist blog.

“So is this a jobless recovery or a labor market so bad it may take the economy back down with it again?” Fox ponders. “I’m still going with the former, but that could just be because I’m congenitally optimistic.”

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Let' see, six plus four, carry the three, and...huh, that's less than last year.

For 3Q earnings, or one quarter one of these days, the bottom line is actually going to be on the top line.

S&P’s senior index analyst Howard Silverblatt notes sales for the S&P 500 companies are expected to fall about $1.52 trillion from 3Q08 — almost as much as the federal stimulus and healthcare plans put together.

Companies will make their EPS numbers this quarter the way they did last quarter, he notes, mainly through cost cutting. But, “you can only cut so long,” he writes. “Eventually you need to increase the top line in order to increase the bottom line.”

Silverblatt also notes that financials are expected to rise 115% in the quarter — which will still leave them down 72% from the 3Q98 and 83% off the 3Q06.

Earnings in 2010 are projected to hit $73.47, up 34% from the projected 2009 tally of $54.77. But that would still be 16% below 2006′s $87.82, with the market down 26.5% from the 2006 close.

At some point, companies are going to need to show actual, organic growth. It hasn’t happened yet.

Care to buy a bunch? (A bargain, even in euros.)

The bulls are getting just about everything they want this morning, and the only question for now is how far can they take it.

All the news has tilted higher, from Alcoa’s surprising profit report last night to the equally surprising retail sales reports this morning. In between there was another surprise, as weekly jobless claims fell by a larger than expected amount.

Even a skeptic has to admit certain things. Retailers broke a year-long string of sales declines. That’s a good thing.

The decline in jobless claims is also a good thing, but it comes with caveats. For one thing, at 521,000, initial claims are still in a very bad place, and point to further jobs declines. Also, and more importantly, the big question now is, when will the hiring begin?

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Better-than-expected 3Q results from Alcoa late yesterday help cast a positive premarket tone for US stocks.

AA’s profits were down 71% vs year ago, and sales were off 33%, but Street was looking for a loss, and revenue did improve vs 2Q.

Asian markets moved higher overnight, and European stock markets are also stronger so far. Weekly jobless claims set for 8:30 a.m., and August wholesale trade data due at 10:00 a.m. September chain-store sales reports spill out throughout the morning. US dollar looks to be struggling again, commodities rallying.

S&P futures up 8.60; DJ futures up 71. Ten-year lower, yield at 3.19%.