Market Talk

Our colleague Michael Derby has this overview of Fed Chairman Ben Bernanke’s testimony up on Capitol Hill this morning:

In testimony before Congress, Fed Chief Ben Bernanke says he sees a continued US recovery and expects inflation to stay contained. But he also warns sustained commodity-price increases could threaten the recovery and warns the central bank won’t allow inflation to take hold. Most of Bernanke’s comments on the outlook hew closes to things he and other Fed officials have said. Put another way, the remarks are no game changer, although they do reflect the increased attention paid to commodity prices.

The two most interesting topics today and tomorrow are likely to be the end of QE2, and commodity prices. On the former, you may get a hint or two, but that’ll be it. On the latter, the Fed chairman is still holding to his opinion that Fed policies are not the cause of the inflationary wave that’s spreading across the globe.

I just don’t know where to go with that. The Fed’s been trying like madmen for the past two years to spark inflation, given they’re terrified of deflation. The dollar is the world’s reserve currency. Most markets trade in dollars. Bernanke can do the “Huh? Wha? Don’t look at me” bit, but it’s not a very convincing act.

Stocks see selling with some conviction (NYSE listed volume more than 5.7 billion shares)  for the second day in a row, spurred on by fear that soaring oil prices will derail the fragile economic recovery.

Nymex crude briefly hit $100/barrel for first time in more than two years, sending shivers through industrial stocks, and stocks of companies most sensitive to discretionary consumer spending, like Tiffany and Coach.

H-P shares tumble almost 10% after disappointing earnings and outlook, and drop accounts for roughly 35 points of Dow Industrials’ decline.

First back-to-back triple-digit drop for DJIA since early June, average falls 107.01 to 12105.78, and Nasdaq Comp slides 33.43 to 2722.99. S&P 500 ends 8.04 lower at 1307.40.

No real sign that the source of the market’s current angst — unrest in North Africa and Middle East — is about to abate, so oil prices (instead of the Fed) may be calling the shots here for a bit.

Weekly jobless claims, January durable goods orders and new home sales will be tomorrow’s economic reports of interest. On the earnings calendar, GM, Target, Sears and Kohl’s all report before the open; AIG reports after the close.

Newswires’ Veronica Dagher interviews Charles Schwab’s Liz Ann Sonders about inflation, its effect on the economy and whether the Fed’s going to get in front of it in time to arrest its rise.

Fed Chairman Ben Bernanke defends his agency’s monetary policy, while Campbell’s continues to struggle selling soup.

The rally refuses to yield. Stocks once again shake off some early weakness and grind out more gains, led by the energy, materials and consumer staples sectors.

Interesting feature today — Treasurys also gain, 10-yr note’s yield easing back down to 3.57% on some safe-haven buying after conflicting reports about Iranian warships heading for Suez Canal. Oil also rallied, as did gold, silver, copper, cotton, etc. Sort of a buy everything type day.

Economic data generally strengthening, but not without flashes of hotter prices, though no sign investors are nervous about inflation yet. Major averages stretch their multi-year highs, DJIA rises 29.97 to 12318.14, and Nasdaq Comp adds 6.02 to 2831.58. S&P 500 ends 4.11 higher at 1340.43.

DJIA makes it 15 winners in last 20 sessions; S&P 500 notches 16 out of 20, and up 98% from March 2009 low. Nasdaq less than 28 points from its October 2007 high.

By the way, Weight Watchers (WTW), today’s poster child for hot money and subject of an earlier post, closed at $65.39, up $20.47, or 46%. Volume was 10.5 million shares, 30-times the normal daily average for the past year. More than ample reward (way more) for a good earnings report. Another QE2 success story, right Ben?

Anyone wondering what smoking-hot money looks like, take gander at the action in a few stocks in the last couple days.

Remarkable (jaw-dropping, actually) action in Weight Watchers (WTW) shares today, with the stock continuing to mark up fresh all-time highs as we write. The company had a strong 4Q earnings report and executives sound upbeat, but c’mon. Shares have been jammed up more than twenty bucks, 45%, to $65.30. What the?

Now, we’ve seen a few things in our roughly 16 years hanging around Wall Street and covering financial matters, but never seen the stock of a company as mature as Weight Watchers explode to the upside as it is today. Simply extraordinary. On a good earnings report. Even if it’s a fantastic earnings report, a 45% jump on volume of 9.5 million, 27-times normal average daily of about 350K? A lot of stocks don’t go up that much when the company gets bought out, never mind an earnings report.

And this ain’t no short squeeze, gang, as short interest looked to be only about 4%. No, this just looks like scorching-hot money trying to find a home, any home. Continue reading…

Maybe that modest selloff yesterday was just bulls teasing bears, judging by gains in premarket equity futures. However, economic data due before the market opens still could present a potential hurdle for bulls.

January PPI, and housing starts both due at 8:30am ET. Let’s take a guess that weather may’ve stunted new home and apartment construction last month. Expectations are for starts to rise a little. Unless builders went full-out in the Sunbelt (where there’s already plenty of empty houses and condos), hard to see how starts produce even a modest rise.

Also, Jan industrial production and capacity utilization set for 9:15am. FOMC minutes due at 2:00pm, may add some twists and turns to late-session trading.

S&P futures up 4.00; 10-yr note higher, yield at 3.60%.

Missed this item earlier, which crossed the tape while I was sleeping at 3:43 a.m. EST today, from Andrea Hotter, DJ Newswires assistant managing editor in London:

The current overall commodity markets find themselves near the most historically overvalued levels, on a short-term basis, in over 200 years, says Shawn Hackett of commodity brokerage Hackett Financial Advisors.

Adds that if history does repeat itself, “then a major correction in commodities can begin at any moment without warning.” Sees “extreme caution” as being necessary with only natural gas, coffee, milk and rice being attractive, although “all would suffer to some degree if a major intermediate term correction were to unfold in overall commodities.” LME copper, tin are at record highs above $10,000 a metric ton and $31,300/ton respectively, Liffe May sugar recently hit 30-year highs around $750/ton.

But don’t sweat it folks, it’s all supply and demand. Has nothing to do with oceans of hot money looking for a home.

Didn’t have much time to lift my head up to take a look around at what’s happening in the world today, but here’s a few things that caught my eye.

- NY Fed President Bill Dudley in comments today said enough bad stuff about the economy in order to justify continuing the Fed’s $600 billion bond-buying escapade, and enough good stuff about the economy to encourage bulls and performance chasers to keep buying stocks. Here’s a couple of examples of headlines showing the Fed trying to have its cake and eat it too:

Fed’s Dudley: Current Economic Situation ‘Unsatisfactory’
Fed’s Dudley: US Economic Situation Is ‘Considerably Brighter’

To Dudley’s credit, he did say the drop in January’s unemployment rate was “not an unmitigated positive,” as fewer people were actually out looking for jobs.

- Story on the top of WSJ today — “Mideast Unrest Spreads” — didn’t exactly spook stock markets. Perhaps it should. There’s a certain complacency about the events in Egypt that seems a bit mystifying, as if everyone’s convinced this transition from 30-year dictatorship to well-heeled democracy will be smooth as silk. The DJIA is up about 2.4% since the protests began on Jan 25, while the S&P 500 is up 3.2%. Hardly missed a beat. Meanwhile, protests flared in Iran, Algeria, Bahrain, Yemen and Jordan and it’s hard to imagine there’s a lot of pro-US sentiment swirling amid the Middle East upheaval.

Like Europe’s sovereign debt problems, this thing is only on simmer now, but could easily heat to a rapid boil at any time. Continue reading…

Once again it looks as if the Dow Industrials’ winning streak (now at eight straight sessions) may be in jeopardy, but it would be foolish to underestimate the bulls’ ability to turn things around, especially late in the session.

“These days, opening indications and actual closing prices are two very different animals,” Barry Ritholtz noted earlier at the Big Picture. He has a precise summation of how the bull vs bear battle has gone during the past several months:

In the face of massive liquidity of QE2, there remains a firm bid beneath this market. So far, losses have been modest to minuscule, with selling pressure well contained. M&A, share buybacks, anything but disappointing earnings are an excuse to put on the rally caps. Even dips are an excuse to buy. (We are running 53% cash on specific name selling, not overall market calls).

The bears are bloody but unbowed — they know a correction is imminent. But the bulls have heard this line for nigh on two years, and yet still the market still powers higher. The Dow, S&P and Nasdaq are all at multi-year highs. There is a difference between being early — a matter of days or weeks — and wrong. So far, the bears have been wrong.

Eventually, the grizzlies must be fed. They have their champions, including various Fed Hawks, who are terrified of an inflationary spiral. Lacker, Plosser and Fisher may be mortal enemies of price instability, but they are friends of Yogi and Boo-Boo and Baloo, well known amongst ursines for their opposition to easy money. And easy money is a bull’s best friend.

Even the most ardent bull knows that this too, will pass. The bears will have their day, before their next bout of hibernation.

The 64 trillion question: When? Continue reading…