Market Talk

It’s hard to imagine a flatter session for US stocks, which barely budged today, despite several encouraging economic reports this morning.

DJIA eases 16 to 11570, S&P 500 loses 2 to 1258, Nasdaq Comp slips 4 to 2663. NYSE volume at roughly 1.87B shares composite is one of if not the lowest of the year.

Jobless claims drop sharply to under 400,000, lowest since July ’08. Chicago PMI surprises to the upside, and pending home sales rise (still down from a year ago.) While the direction in jobless claims is clearly improving, the surprisingly large drop today should make you cautious. We wrote this up for the wire earlier:

Barclays says the drop in jobless claims is “clearly a positive signal regarding the labor market and reinforces the downward trend that has been in place since mid-summer.” But firm notes it expected a drop, as the report’s seasonal factors anticipated a sharper rise in the non-seasonally adjusted numbers than actually appeared; unadjusted claims rose by 25,000 to 522,000, less than usual for this time of year, firm says. “While we expect this downward trend to continue, we expect next week’s report to show a bounce back up to 410,000 for initial claims for the week ending Jan. 1, as the usual seasonal rise in unadjusted claims begins.”

Also, we’re all off tomorrow, so unless we get some burst of nervous energy, this is likely our last post for 2010. Year went by like lightning. Let’s hope 2011 is better, but hope, as has often been noted, is not a very good basis for action.

Thanks for reading the blog. We’ll see you next week.

A host of positives in today’s economic data — lower jobless claims, stronger Chicago PMI and pending home sales. On the face, all good. But dig a little deeper, and there’s enough squirreliness in there to demand some attention.

First, weekly jobless claims. For the most part, economists reaction to the seasonally adjusted drop of 34,000 initial claims to 388,000 (lowest since July 2008) has been level-headed, as they note this time of year is typically volatile. Hard to read too much into the gauge right now.

“While it is clear that initial claims are trending down as the labor market recovers, we would advise taking the result reported today with a very large grain of salt,” MFR economist Joshua Shapiro wrote. “The holiday season normally creates volatility in these figures that doesn’t shake out until late January/early February, and a week ending on Christmas Day only magnifies the situation.” Difficult to draw firm conclusions from weekly jobs data for a while, he adds, with forecasts for the next several weeks “really nothing more than dart-throws.” Continue reading…

American companies, quite obviously, do a lot of business in America. After all, this is still by a large margin the world’s largest economy. However, while they can’t ignore the U.S., while they still derive probably somewhere’s around half if not more of the profits from the U.S. market, they don’t get their profit growth from the U.S., they get it from overseas, and it’s profit growth, even more than profits, that matters most to investors.

So, it stands to reason that if American companies are getting their growth from overseas, when it comes time to expand their operations to meet that growth, they’re going to do so locally. Which means that this surge in corporate profits is fueling as much if not more hiring overseas than it is here.

From an AP story (via Detroit Free-Press) about hiring trends:

US stocks angling toward another languid session, the penultimate day of trading for 2010. Just going through the motions now, folks.

Asian stocks tilted higher overnight under the positive influence of strong metals prices, though Tokyo was an exception, Nikkei down 1.1% on concerns about impact of strong yen. European stocks are down. Dollar index still a bit soft, euro higher, recently around $1.325.

Weekly jobless claims due at 8:30 a.m.; Chicago ISM business survey (formerly PMI) at 9:45 a.m. ET; November pending home sales at 10:00 a.m.; and Kansas City Fed’s Dec manufacturing survey at 11:00 a.m.

S&P futures down 1.70; 10-year note edges lower, yield at 3.36%.

Stocks drift slightly higher, but finish weakly, at session lows, as bids seemed to disappear in the closing minutes. It’s been a strong month for equities, so no surprise to see a little money come off the table near the close.

Sleepy trading overall, with markets seemingly on autopilot as 2010′s conclusion draws near. Financials, utilities, industrials and consumer staples all pull back; energy, materials lead advancing sectors. USD gets hit pretty hard, and Treasurys produce a nice rally following yesterday’s sell-off, 10-yr yield back down to 3.34% after ending yesterday near 3.49%.

DJIA rises 9.84 to 11585.38, closing at its highest level since late August 2008. The average is up more than 5% in December and 11% for the year. Nasdaq Comp adds 4.05 to 2666.93. S&P 500 ends 1.27 higher at 1259.78. The index is up 6.7% this month and nearly 13% for the year.

Weekly jobless claims, December Chicago ISM (formerly PMI) and November pending home sales all due tomorrow. Data hasn’t had a great influence on stocks lately, though, and not much reason for it to draw much reaction tomorrow, either.

Let’s talk Treasury auctions (the seven-year auction consequently went well,) stock gains and retail sales in the wake of Snowmageddon.

Apologies for the light, well, non-existent is more like it, posting today. Between the holidays (literally between the holidays, as a point in time), people taking off for vacations, and the storm, we’ve been short-handed around the office. Also, I started working up a post that used this post from David Cay Johnston as a starting point, but it’s morphed into something larger and more philosophical, and will take more mulling, ruminating and editing to hammer into shape.

But, I came across this post from Peter Atwater over at Minyanville, and it jibes with something I’ve long thought: that if we had made the hard choices at the beginning of the crisis, if we hadn’t bailed out everybody (except Dick Fuld and Lehman), if we had owned up to the bad decisions we made, we would already be on a real road to recovery, not this ginned-up Potemkin Village the Fed and federal government have concocted.

Denial ain’t just a river in Egypt, as they say. From Atwater:

To these eyes in all segments of the economy, we have traded hard “choices” for denial. But I can’t help but wonder if the ultimate consequences from our Years of Magical Thinking will be far greater than had we made the tough choices beginning in 2007, particularly as governments (at all levels here at home and in Europe) have leaned heavily on “financially engineered” solutions. Maybe it’s just me, but QE2, the second round of fiscal stimulus, the securitization of tobacco settlements, the ESFS, and so forth, all resemble variations on the same “off-balance sheet” liability theme which began this crisis.

As I look at the world, wherever possible, elected officials have traded more contingent liabilities for time.

But beyond the financial implications of this trade, there have also been immense social consequences. As I offered earlier this month in Our Increasingly Dangerous Asymmetric Economy, I am very concerned that our Years of Magical Thinking have widened an already tenuous divide between “The Haves” and “The Have-Nots.” And not just here at home, but in Europe as well.

Wow. Now today was a dog. I mean, yesterday’s volume on the NYSE, a day that saw what seems like the entire Eastern seaboard buried under a couple feet of snow, was 2.6 billion shares traded, the lowest in a year.

Today’s volume was 2.48 billion shares traded. So, it’s not just the snow; there’s nobody trading stocks this week, which means the moves mean very little in the grand scheme of things. Of course, the moves are so small, there’s no real doubt about that. It was the proverbial waste of a clean shirt and cab fare.

The Dow gained 21, to 11576, the S&P 500 added 1 to 1258, the Nasdaq Comp slipped 4 to 2663. Treasurys tanked after a weak auction of five-year bonds spooked investors there, which helped equities to some extent. The 10-year yield is back near 3.50%. Crude oil edged up to $91.75, although it’s eased off that since. Keep and eye on crude prices.

One more note on this whole improving-economy thing, courtesy of the NY Times’ Bob Herbert:

I keep hearing from the data zealots that holiday sales were impressive and the outlook for the economy in 2011 is not bad.

Maybe they’ve stumbled onto something in their windowless rooms. Maybe the economy really is gathering steam. But in the rough and tumble of the real world, where families have to feed themselves and pay their bills, there are an awful lot of Americans being left behind.

He cites a recent paper from two Rutgers professors, “The Shattered American Dream,” which follows the travails of about 1,200 people who lost their jobs during the Great Recession. It’s a sobering read. So many remain out of work. So many found jobs, but have seen their standard of living eroded with the reduced wages. So many have become “the involuntarily retired.” Herbert concludes:

The fact that so many Americans are out of work, or working at jobs that don’t pay well, undermines the prospects for a robust recovery. Jobless people don’t buy a lot of flat-screen TVs. What we’re really seeing is an erosion of standards of living for an enormous portion of the population, including a substantial segment of the once solid middle class.

Not only is this not being addressed, but the self-serving, rightward lurch in Washington is all but guaranteed to make matters worse for working people. The zealots reading the economic tea leaves see brighter days ahead. They can afford to be sanguine. They’re working.

I’ll be honest with you, I’m starting to depress myself with all this cold, hard reality. I’d like to dive into the warm waters of the bright recovery and just go with where the spin doctors want to take me. I’m sure it’s a fun little ride. But my conscience just won’t let me do it.

For those of you who think the recovery has achieved escape velocity, that the good times are sure to start rolling any second now, there’s this. The money quote (possibly ironic, impossible to know quite yet), from our colleague James Altucher, here is: “Stick to your greed for 2011.”

Greed is good, again, don’tcha know.

For those of you who aren’t quite convinced, there’s this, from John Hussman:

We are observing what can only be described as a Fed-induced speculative blowoff. While this has been avidly encouraged by the Fed, it is important to recognize that there is no actual economic mechanism at play here other than words. Investors are chasing stocks because Ben Bernanke told them to, and despite the fact that we have seen two plunges of more than 50% each over the past decade, investors are at least temporarily willing to believe that the Fed will “backstop” their risk-taking by preventing the market from falling. As for any “transmission mechanism” attributable to QE2 itself, Treasury yields and mortgage rates have increased sharply since the Fed first announced QE2, and the additional reserves created by Fed purchases have simply added to the already massive and idle pool held by banks. Unless one twists logic into a pretzel so that up is down, one can identify nothing of substance in the Fed’s policy that is supporting the markets. Stocks are being buoyed solely by a combination of words, sentiment and superstition. As Stevie Wonder put it, “When you believe in things that you don’t understand, then you suffer.”

Money quote: “Investors are chasing stocks because Ben Bernanke told them to.”

Also, if you don’t know exactly what Stevie was talking about, or you just feel like getting funky, it’s superstition, baby, and it ain’t the way. If you don’t feel better after watching that video, get yourself to a doctor, because there’s something wrong with you.

The double-dip in home prices is “almost” here, according to S&P after the monthly Case-Shiller home-price index was released. Given that the report covers October, “almost” may have “already” come.