Market Talk

Stocks finish lower in a dull, light-volume session. Dow Industrials stay cooped up in a tight range for most of the day, and then falter in the final minutes in action that looked more like buyer fatigue rather than any fresh offensive by sellers.

Consumer discretionary stocks stand out for their weakness following a report showing consumer spending increased but mainly due to higher prices, and real disposable income fell in Feb vs Jan. Oil retreats, which weighs on DJIA component Chevron; IBM, Home Depot also among the average’s leading dollar decliners. All three major indexes end at session lows. DJIA falls 22.71 to 12197.88, and Nasdaq slips 12.38 to 2730.68. S&P 500 ends 3.61 lower at 1310.19.

Trading volume again was weak, which isn’t a great sign for bulls. Via Newswires’ Tomi Kilgore, Miller Tabak technical analyst Phil Roth noted this morning that volume during the recent rally has fallen “from moderately low levels to very low levels…suggesting the rally was mainly a function of traders reversing bearish positions, with little evidence of investment buying by traditional institutions or by the public.” Without increased upside volume, Roth said “the short-term rally is likely to become a top-broadening affair.”

Tomi also noted that while the DJIA today failed to break resistance in 12250-12280 range, “bulls can take some comfort knowing the Dow Jones Transportation Average is still up, and firmly above a similar resistance area.”

More from Tomi:

DJIA closes down 22 at 12198. The intraday high of 12273 was within the 12250-12280 resistance range where there were several intraday highs during the early-March consolidation range. Failing at that resistance preceded the DJIA’s 600-point drop in five sessions to a fresh 2011 low on March 16. But DJTA gains 22 to 5229, off a high of 5254, above its early-March resistance range at 5165-5195.

The Street currently expects S&P 500 operating earnings to climb roughly 32% in 2012 from current levels, a number that Credit Suisse strategist Doug Cliggott says “looks very aggressive, especially given the already elevated levels of the US economy’s profit margins.”

Cliggott writes in a research note that the profit share of US national income, “in essence, the US economy’s profit margin,” has been climbing steadily since 4Q 2008. When the profit share of national income is rising, the S&P 500 has averaged 12% annual returns, he says. When it’s declining, average annual return falls to 2%.

Now it looks as if the profit share as a percentage of national income may be peaking, Cliggott says, as it was steady at 12.7% in 3Q and 4Q 2010. But here’s the rub: in the last 10-12 years, profit share of US income and S&P 500 operating earnings have been “highly correlated,” he says, meaning a peak in operating EPS “may also not be too far out in time.” Continue reading…

Sitting out the past week on vacation, one thing I was struck by is the vibe from Wall Street analysts, strategists, pundits, etc., that the stock-market pullback driven by the Japan disaster is just another buying opportunity. Just another chance to load up.

The sense of assurance in the voices of guests on CNBC, or in written missives, reminds me of the same widespread attitude in the months following the tech bubble bursting in early 2000. Every dip was to be bought, stocks were “on sale” and each sell-off just created another “buying opportunity.”

I admit to eventually buying into the logic myself, by picking up 50 shares of Cisco (CSCO) in an IRA in early 2001 after the stock had fallen more than 50% from its 2000 peak. How much further could a blue-chip tech darling like CSCO fall, anyway? Another 60% from where I bought it, that’s how far. Ten years later it still hasn’t recovered all the way.

Looking back, the bursting of the tech bubble seems like a brief rain shower compared to the mayhem in the global picture today. As Paul noted earlier, how can anyone say with reasonable accuracy that “the worst is over”? Simply absurd.

Another grabber while I was away was the Fed noting “that the economic recovery is on a firmer footing.” Maybe so. But how firm can it be if the committee, without a single dissenter, caps off the statement by saying it “continues to anticipate that economic conditions…are likely to warrant exceptionally low levels for the federal funds rate for an extended period”?

If things are firming so nicely, then why not cease with the QE2 and ease up interest rates a quarter or even half a point? Don’t hold your breath for that, citizens. The only thing on firm footing is Ben Bernanke’s loafer, pressing the liquidity pedal to the floor.

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.

Stocks succumb to a selloff that’s been lurking out there, and comes as little surprise to anyone who’s watched markets rise nearly uninterrupted for almost six full months now.

Heady gains since late August collide with spiking oil prices and building geopolitical unrest to create a potent catalyst for a selloff. Exxon Mobil, Chevron and Kraft the only Dow components to escape declines. Materials, financials, industrials and consumer discretionary the hardest hit sectors.

Bulls have shown a remarkably strong ability lately to rebound from setbacks like this, which will be tomorrow’s test. In addition to what’s likely to be another day of violence and protests in North Africa/Mideast, investors get a chance to react to January existing home sales, and H-P’s disappointing outlook.

DJIA falls 178.46 to 12212.79, and Nasdaq Comp slides 77.53, or 2.7% (equal to about 335 DJIA points) to 2756.42. S&P 500 ends 27.57 lower at 1315.44.

Couple factoids: S&P 500 today saw it’s biggest percent and point drop since August 11; biggest point drop for Nasdaq Comp since June 29, and biggest percent drop since Aug 11. Also the biggest percentage and point drop for Russell 2000 since last August.

Stocks are selling off and crude futures are spiking amid the escalating violence in Libya amid revolutionary fervor in the Middle East.

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?

Stock futures hovering close to flat, a posture that’s become very familiar lately, with no tip-off as to where markets are headed this morning.

Stocks in Asia logged mostly gains overnight, and European markets are currently a tad lower. Economic data due before the opening bell may have some influence, with weekly jobless claims and January CPI set for 8:30am ET. Initial jobless claims expected to rise 17,000, while headline CPI seen up 0.3% and core up 0.1%.

Philly Fed’s February business survey and Conference Board’s Jan leading indicators both due at 10:00am. S&P futures down less than a point; 10-yr note higher, yield at 3.60%.

Early focus should remain on the price of stuff. CPI of course should show higher prices feeding through, and we’re keen to see how hot things are getting in Philly Fed survey’s price paid/received measures.

Will it matter for stocks? Likely depends on how hot the readings are. If there’s a growing perception that the Fed is falling way behind the curve on the “stable prices” part of its mandate (which is already likely, let’s not kid ourselves), then maybe (big maybe) it gives bulls something to ponder and they ease back.

And don’t completely count out the geopolitical stuff. Even though that screeching about Iranian warships headed through the Suez Canal looks to be hysterical b.s., Bahrain is looking more like Egypt every day, and the protests haven’t necessarily dwindled elsewhere.

DJIA now sits just 13% below its all-time record close in October 2007, up about 88% from March ’09 low. S&P 500 up about 98% from March ’09 low and about 15% below Oct ’07 high. Nasdaq within a whisker of multi-year Oct ’07 closing high, just 33.56 points away.

Another directionless premarket setup for stocks, as investors prepare to digest a burst of economic data this morning.

January retail sales, import prices and NY Fed’s February Empire State manufacturing survey all due at 8:30am ET; December business inventories and homebuilders’ Feb sentiment index set for 10:00am. Cleveland Fed’s Pianalto also scheduled to speak about economic conditions around 10:00am.

Prediction: Any better-than-expected data helps stock rally, but anything that stinks gets dismissed as skewed by bad weather.

Dell reports results after the close. FedEx profit warning late yesterday gets shrugged off, as it seems everyone saw this one coming, what with all the bad weather and soaring fuel costs. FDX actually pointed higher premarket, the spin no doubt suggesting “it could’ve been worse.” Well, the weather may get better, but don’t hold your breath on those fuel prices, citizens.

Stocks in Europe mostly higher, euro is firmer, USD index off 0.3%.

S&P futures flat; 10-yr note lower, yield at 3.65%.

“I would have thought — it was hope in fact — that the return to classic Graham-Dodd investing for the long-term would have made a resurrection coming out of the housing and credit collapse,” Gluskin Sheff’s David Rosenberg writes. “But when you have the Fed Chairman discuss openly the wonders of seeing the Russell 2000 index surge 30% in the time span of a few months, you know that speculative fervor and the magic of liquidity have come to once again dominate the investment landscape,” he adds.

Stocks are a little lower, which threatens to end the DJIA’s seven-session winning streak (11 out of the last 13). IBM, CAT and JPMorgan — all names that have helped lead the rally lately — among the Dow’s biggest weights today. Exxon, Chevron also a drag, crude edged lower. DJIA off 21.