Market Talk

At the end of last week, we joked that “if the troubling headlines keep up, we could be back at all-time highs before Earth Day.” So far, so good –  the headlines are still dreary, and bulls are the ones laughing as stocks forge higher.

It remains a curious and impressive sight. An ugly March consumer confidence report, and another month of home-price declines indicating that even after prices started heading south nearly five years ago (and tens of billions of taxpayer money used for artificial support), housing still hasn’t found a bottom. And stocks rally.

Now, it’s true the downbeat numbers were in line with expectations, but that doesn’t mean they stink any less. And their implications for future activity, both for consumers and the housing industry, are grim.

Economists worked to minimize the consumer confidence tumble, saying it’s tied to high gas prices, events in the Mideast and market volatility, as if those troubles are set to disappear any day now. Consumers’ near-term outlook is considerably worse than a month ago, with fewer expecting business conditions to improve, fewer expecting their incomes to increase and fewer expecting to see more jobs. And those declines are all off of already low numbers. Continue reading…

February’s new home sales were an utter disaster, falling to a record low. Mizuho USA economist Steve Ricchiuto may’ve put it best: “Nothing good can be said about the February report on new home sales.” Nothing good should be said of these abysmal numbers, but that didn’t stop some economists from straining to find the silver lining.

RBS economists accurately noted no sign of recovery, but suggested other data, like a slight uptick in the monthly home-builders’ sentiment index, showed the picture wasn’t “nearly so dire,” so “we are hesitant to read too much into this one report.”

Huh? Don’t want to “read too much” into a record low? Yeah, wouldn’t want to misread the fewest number of new homes ever sold in a month. Credit Suisse economist Jonathan Basile points out that the number of new homes for sale — 186,000, not annualized — was the lowest level since November 1967. Maybe we shouldn’t read too much into that either.

Kidding aside, the small number for sale isn’t a bad sign, as it shows builders being disciplined enough to just try to sell what’s on hand before they ramp up more new construction.

RBS wasn’t alone in reaching for a positive spin. RDQ Economics also cites NAHB’s sentiment index (which rose to 17 from 16; it hit 72 in June ’05 and recently as high as 22 last May). Firm says survey suggests “underlying conditions are improving slightly,” and the firm expects a bounce “over the next two months.” Not exactly a heroic call, expecting a “bounce” off an all-time low.

Mizuho’s Ricchiuto doesn’t sound as optimistic. “The sharp decline in prices also suggests that consumer wealth may be taking another hit even though equity valuations have risen,” he writes. “This report and the existing home sales data released yesterday confirm that the housing market is still in free fall.”

Investors may or may not be looking for a silver lining, but they apparently see home-builders as a sort of “why not?” proposition. One of the best sectors on the day was consumer discretionary, which includes the home builders. PulteGroup (3.6%) and Lennar (1.2%) rose, although DR Horton (0.5%) fell.

After all, how much worse can it get?

A little perspective on today’s economic data:

- January CPI “completes a trifecta of inflation reports that showed both overall and core inflation ahead of expectations,” RDQ Economics writes. “The Fed remains focused on core inflation at the consumer level, which it thinks will be restrained by high unemployment, and largely dismisses higher food, energy, and commodity prices as being influenced by the ultra loose stance of monetary policy,” firm says.

“We are not Phillips Curvers and we are increasingly concerned that inflation is headed higher.” RDQ notes evidence in latest report “that even core CPI inflation has bottomed and has begun to move higher,” and price increases “were fairly broad-based.”

- Weekly initial jobless claims “were worse than expected rising to 410k (400k consensus), but that gain was from a weather induced low of 385k, a number that was not real,” writes Eric Green, chief US rates strategist at TD Securities. “What is real is that the weather distortions are now purged from the claims data and we are left at a 4 week moving average of 417k, essentially unchanged from last week,” he notes. “We need to get below 400k and stay there if the market is to buy in to sustained improvement in the labor market.” Continue reading…

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.

Clearly some strong readings in the January ISM report, notably in the prices index. Perhaps the most informative section contains the following:

Commodities up in price: Aluminum; Aluminum Products; Brass; Brass Products; Caustic Soda; Chemicals; Copper; Copper Based Products; Corn; Corrugated Containers; Diesel; Freight Rates; Fuel Oils; High Density Polyethylene; Lubricants; Nuts; Packaging Materials; PET; Plastics; Plastic Products; Plastic Resins; Polyethylene Resin; Polypropylene; Soybean Oil; Stainless Steel; Stainless Steel Products; Steel; Steel Products; Steel Surcharges; and Sugar.

Commodities reported down in price: none.

Here’s the kicker. Commodities reported in short supply: “Electric Components is the only commodity reported in short supply,” ISM said. A list of 30 commodities with rising prices (many soaring), not a single commodity falling in price. One commodity reported in short supply.

So much for that time-worn economic model for price determination in a market. Continue reading…

It’s been nearly guaranteed for at least the past year — stocks go one way — up — on the first trading day of the month. Looks like the pattern could hold, devil may care.

Nearly all the S&P 500′s 2010 gains were captured during the first trading session of each month, and in seven of the last twelve months, the index was up more than 1% in the month’s first session. So, your odds are pretty good today bulls. While Egypt’s turmoil persists, the dynamic hasn’t changed much, so the consistent drone has lulled investors back to more a complacent mood, perhaps at their own peril.

Pfizer’s 4Q bottom line looks as expected, but outlook disappointed, shares off a little premarket. Meanwhile, strong results out of UPS, upbeat outlook has shares up about 3% premarket.

Jan ISM manufacturing index, Dec construction spending due at 10:00am. Dec auto sales also due today. Crude futures pull back following highest settle yesterday since Oct 2008.

S&P futures up 7.40; 10-yr note falling, yield at 3.43%.

Dallas Fed’s January Texas Manufacturing Outlook survey showed a notable drop in its general business activity index, to 10.9 from 15.8. Ten of 15 monthly indicators fell in January vs December.

The production indicator collapsed more than 15 points to just 0.2, while capacity utilization fell to 4.1 from 18.8. Of the five indicators that increased, the two biggest jumps were in prices paid for raw materials (spike to 62 from 43) and prices received for finished goods (to 19.4 from 11.9).

And the Dallas Fed’s key takeaway: “Texas factory activity held steady” in January.

Held “steady”? They must be redefining the term, because last we checked, the word meant “firmly fixed or stable”; “Not changing movement, direction or quality.” There’s nothing “steady” about this report, citizens. Feel free to take a look for yourselves.

The implications for inflation expectations look particularly unsteady. “Sixty percent of respondents anticipate further increases in raw materials prices over the next six months, while 40 percent expect higher finished goods prices,” the report says.

Addendum: Don’t miss the last two pages of the report, with comments from businesses on their hiring plans. Here’s a little taste from a commenter in food manufacturing:

We need significantly more business to justify hiring additional people. In this uncertain economy and with little peace of mind about what regulations or policies might be implemented…we will not hire anyone until we absolutely need them.

Photo courtesy of Wiki Commons.

Good year in 2010 for US stocks, not such good one for Byron Wien’s list of “top ten surprises.” As a strategist, and now Blackstone vice chair, He’s been doing this a long time. Doesn’t mean he’s getting any better at it, though.

By our count, he was completely wrong on eight of his predictions, mostly wrong on his No. 1 (GDP would grow at 5% real rate, unemployment would drop below 9%; S&P 500 operating earnings would come in above $80 — that looks safe.)

Big swing and a miss on the following:

- Fed would raise interest rates, with Fed funds rate at 2% by year end. We’ll be lucky if that one happens by 2012.

- Yield on 10-yr note would go to 5.5%. See above. Equally fanciful.

- S&P rallies to 1300, then falls below 1000 and ends year at 1115. Nice try. Not even close.

- Dollar rallies vs yen and euro, with EUR/USD dropping below $1.30. Briefly correct on that one, but didn’t last.

- Congress would pass bills providing loans and subsidies for new nuclear power plants. Didn’t happen.

- Democrats would only lose 20 House seats in November. Whoops.

- Civil unrest reaches crescendo in Iran, Ahmadinejad gets pushed out. Also didn’t happen.

- Japan’s Nikkei 225 rises above 12000. Not quite. Continue reading…

Premarket stock futures point to a dash higher to kick off January, typical way for investors greet the new year.

In 2010, the Dow Industrials rose more than 150 points in the year’s first session, sprinted to a roughly 3% gain in January’s first two weeks, and then coughed it all up as the average was down 3.5% by month end.

Lively week for economic data, beginning today with December ISM manufacturing index and November construction spending at 10:00am ET. Dec jobs report due Friday, but before that we’ll see Nov factory orders, Dec auto sales, FOMC minutes, ISM services index and Dec chain-store sales.

S&P futures up 10.10; Dow futures rise 88; 10-yr note lower, yield at 3.33%.

Dow Industrials rose 11% in 2010, and S&P 500 climbed almost 13%. Feeling wealthy yet, citizens?

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…