Market Talk

US stocks start the week with what amounts to a wire-to-wire win, loping out to moderate gains and never really looking back. Credit stronger oil and other commodity prices as main driver behind gains, helped by a weaker US dollar.

Exxon Mobil and Chevron contribute roughly a quarter of the Dow Industrials’ advance; Boeing and CAT the other key dollar gainers for the index. Financials shook off early weakness to finish higher. Consumer discretionary sector ends slightly in the red.

S&P 500 can’t quite crack 1175, ends at 1173.22, up 6.63. DJIA rises 45.50 to 10895.86, and Nasdaq Comp adds 9.23 to 2404.36.

Key data tomorrow morning include January Case-Shiller home price index, and Conference Board’s March consumer confidence reading.

(Photo courtesy of Wiki Commons.)

- Spiking interest rates shouldn’t be dismissed as an “irrelevant development,” especially if they continue rising at their recent pace, James Hamilton says.

- Short sellers deserve some vindication, especially for uncovering dishonest management, Barry Ritholtz says.

- Health-care reform sends out accounting ripples, FT Alphaville notes, as AT&T (T) as well as 3M (MMM), Deere (DE), Catepillar (CAT) and AK Steel (AKS) are all anticipating charges.

- Obama’s health-care victory has “breathed new life into his administration” and energized Democrats. His next “big thing” should be focusing on jobs, former labor secretary Robert Reich says.

- “Relative to every previous recession since 1948, the current hole in lost jobs is unusually deep,” James Picerno says. “In addition, the trend in job destruction this time suggests that repairing the damage will take longer compared with the past 60 years of economic recovery.”

- Trading in the weeks before and after Easter may not be as quiet as many think, Bespoke notes.

- “Against all the odds, a glimmer of hope for real financial reform begins to shine through,” former IMF chief economist Simon Johnson says.

-High income disparity leads to low savings rates, Yves Smith writes.

- “The problem is regulating shadow banking — non-depository banking,” Paul Krugman says. “So right from the beginning we have the problem of deciding what is a bank, and what liabilities need deposit-type guarantees.”

- “The Fed will take comfort in the inflation statistics even though the energy component in particular will reverse higher in March,” Miller Tabak’s Peter Boockvar says. “But income growth running higher by 2% y/o/y with spending up 3.4% y/o/y can only last for so long with access to credit not what it used to be.”

- Don’t blame the Fed for the jump in mortgage rates, Paul writes in today’s Ahead of the Tape column.

Stagnant wages didn’t stop consumers from opening up the purse strings a bit last month.

Consumer spending rose 0.3% in February, better than the 0.1% increase economists were expecting. But personal income remained flat compared to the prior month, according to the Commerce Department.

And the saving rate slowed to 3.1%, the lowest its been since October 2008.

“A nearly unprecedented pullback in consumption during the recession generated a significant degree of pent-up demand, which is now being gradually unleashed,” RBS economist Michelle Girard says.

Unfortunately, rising spending without income growth creates a bit of a disconcerting situation. As Calculated Risk points out, spending will likely come in around a 3.0% annual rate in 1Q, which would mark the highest growth rate since 1Q07.

“However this being driven by less saving and transfer payments – not growth in income,” blog notes. “This is a decent report for personal consumption expenditures, but PCE growth is not sustainable without income growth.”

Economist’s Free Exchange blog looks back at income and consumption on a historical basis, noting income grew about as much or more than consumption throughout most of the 20th century. From blog:

But during the most recent decade, consumption grew significantly more than income. This was the product of stagnant income growth and easy borrowing, and it corresponds to the great period of increase in household indebtedness.

But that’s all over now, right?

Possibly not, especially as blog notes monthly spending has increased for five straight months, while the savings rate keeps dropping and income remains flat.

Blog still expects the savings rate to increase in the future. “But sustained higher saving will be difficult to achieve absent income growth, just as increases in consumption are unsustainable absent income growth,” Free Exchange notes. “And there is little sign that growth in incomes is looking any more robust than it was over the past decade.”

We’ll buy the notion that the economy is showing improvement in certain areas. Latest data from the Dallas Fed show things continued to get better for Texas-area manufacturing activity this month.

But while the numbers offer reasons to be hopeful that the economy is indeed working its way out of the malaise, we find the comments from respondents of the Fed’s survey to be particularly revealing.

In plastics and rubber products manufacturing, one commenter said there’s been “a subtle uptick in raw material costs without fundamental improvement in the economy as a whole. This is a cause for concern as it is very similar to what we experienced in 2008.”

Not seeing fundamental improvement in the economy as a whole.

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It's just been go, go, go, go, go.

With stocks continuing on their unrelenting move toward the heavens, there’s just a hint of caution creeping into the tone of some of Street’s more consistently bullish voices.

“Although we remain positive on the equity markets, the risks have also risen” as DJIA approaches 11000, Baird strategist Bruce Bittles writes. “The stock market is overbought, investors are growing increasingly complacent, earnings expectations allow little room for error with valuations stretched,” he adds. “In addition, the long end of the bond market is beginning to make noise with the benchmark 10-year Treasury note yield climbing to the highest levels since last June.”

Meanwhile, BlackRock investment chief Bob Doll notes stocks have climbed more than 10% since mid-February, and are currently up 4%-5% for the year.

“So far, equity markets have frustrated the bears, since any signs of price weakness have been quickly reversed,” he says. Short-term, however, “there is a possibility that stocks may have gotten ahead of themselves, as some technical indicators are looking stretched.”

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Short but interesting week ahead featuring a load of US economic data, capped off Friday with March jobs report. Equity investors will have to wait until next week for reaction as stock markets will be closed in observance of Good Friday.

Ahead of that, we’ll see a variety of readings on manufacturing, including March ISM and Feb factory orders. Case-Shiller gauge on Jan home prices due tomorrow. This morning, Feb personal income & spending due at 8:30am; Dallas Fed March manufacturing survey set for 10:30am ET.

USD index under pressure, recently down to 81.30. S&P futures up 6.00; 10-yr slightly lower, yield at 3.86%.