Market Talk

So the stock market is starting off October in mainly the same manner it handled September, by rising. But this morning’s quick jump higher has run into some resistance. I’ll tell you, this is the real danger of doing these videos: when we started, the Dow was up about 70. When I got back to my desk, the Dow was negative. So, yes, we’re essentially on a one-way street, but that’s not to say there aren’t any potholes, and that not to say it won’t change direction, maybe quickly.

It’s up now, but again, there’s some push back. Part of it is technical resistance: the S&P 500′s intraday high is 1150.30, and that’s a key resistance level. The other is fundamental. We went over the income report. The ISM’s manufacturing index wasn’t so hot either. Sure, it beat “expectations,” but it did slow from a month ago, and the sub-indexes were red flags: new orders fell, inventories rose.

US stocks rally again, extending equities’ winning streak, after August jobs report comes in better than feared.

DJIA jumps 128 (1.2%) to 10448, its fourth consecutive gain. Those gains, incidentally, almost totally wiped out August’s loss. S&P 500 rises 14 (1.3%) to 1105, surging sharply, but getting capped around the 100-day moving average. Nasdaq Comp gains 34 (1.5%) to 2234. NYSE volume at 3.5B shares traded is low, but that should be expected ahead of a the three-day Labor Day weekend.

It’s the best three-day showing to open a month since March 2009, a month that lives warmly in many a bull’s heart. Whether the rest of September will replicate March ’09 remains to be seen, but traders are going to at least have a nice holiday weekend to savor it.

Still, stocks haven’t broken out of their trading range, yet. The risk trade got a big boost this week, with a few data points coming in better than expected. Whether that’s a blip or some kind of near-term bottom is the question. In all the euphoria, the stock market almost completely ignored this morning’s ISM services index, which showed a rather distressing slide and on which John has a separate post.

Don’t forget, Mouseketeers, there’s a big difference between better than expected and good. This morning’s jobs report was not good. It was better than expected. The stock market may not care about that difference, but you should.

ISM services index? That come out today?

Peculiar that the stock market today so easily dismissed a worse-than-expected August ISM non-manufacturing report.

Not a big surprise that ISM services weakness is overshadowed by better-than-expected payrolls report, but the complete disregard for this stinker seems a little odd.  

After August ISM manufacturing’s upside surprise Wednesday, the Dow Industrials busted a 250-point move higher, with economists and other pundits quick to suggest the better-than-expected data should shelve any concerns about a double dip.

The fact that several regional manufacturing reports earlier in the month reported starkly different information was given little heed. “The contraction seen in some regional manufacturing surveys in August seems not to have been representative of the national manufacturing sector, as the ISM production index remains above-trend and the employment index was the highest since 1983,” Barclays Capital said this week.

Cut to today – the ISM services sector August gauge falls to 51.5 from 54.3, its lowest level since January and just a point and a half from slipping into contraction territory. The market flinched, juked and jived, but ultimately steadied and frolicked with the frisky euro again.

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US stocks burst out of the gate in September, with the DJIA posting its best one-day gain since early July after a key gauge of the manufacturing sector shows surprising strength.

DJIA surges 255 (2.5%) to 10269, its biggest one-day gain percentage-wise since July 7. S&P 500 jumps 31 (3%) to 1080, Nasdaq Comp rises 63 (3%) to 2177. NYSE volume is 4.5B shares traded, not bad volume for a session a couple days ahead of Labor Day.

Stocks rose sharply early, as traders were apparently emboldened after the S&P held the 1040 level again yesterday. But the ISM reading, coming in not just better-than-expected but actually better, was like rocket fuel. September has a reputation for being a bad month for stocks, but it also often starts off well. It did today.

Now, that lede (newspaper jargon for “lead,” the top of the story, not  be confused with lead, the material they used to use to fill the letter blocks when printing the paper,) I wrote is without a doubt a concise, accurate assessment of today’s session, if I do say so myself. However, I find it hard to believe this rally was built on anything more lasting that Friday’s rally, which had just about completely melted away by yesterday’s closing bell.

Briefly, let’s look at some of the news today. There was that Chinese PMI story. China’s official PMI rose to 51.7 from 51.2. That sparked the global stocks rally. Now, that’s a very minor move, one that still leaves the index too close to the 50 level for comfort in a diffusion index that measures not actual change but the rate of change.

Still, with the proverbial new money pouring into the market, that was enough to get things going. The market totally ignored a trio of private-sector takes on the jobs market, the ADP, TrimTabs and Challenger Grey reports. ADP said private-sector jobs fell 10,000, TrimTabs said it was down 65,000. The Challenger report was actually bullish, they said job cuts fell to a decade low. Still, those first two do not presage a good number Friday when the BLS reports the nonfarm payrolls. But no matter, because the ISM’s take on US manufacturing came in at 56.3, up from 55.5, when it was expected to slide to 52.

What makes it so surprising is that absolutely everybody expected it to fall, given that the regional Fed surveys have been uniformly depressing. So, is the ISM number a one-off or some counter-trend? I just don’t know yet, but I’m very suspicious of the ISM number. It just doesn’t fit in with anything else we’ve been seeing.

Lastly, we’ll leave you with this, a tidbit that John pointed out to me just now. As bad as August was for stocks, May was that much worse, with the DJIA losing better than 8%. What’d the Dow do on the first trading day in May? It rose, about 143 points. Over the next four sessions, it lost 771 points, a time frame that included the now-infamous Flash Crash.

Stocks are rallying after a surprisingly (very surprisingly) strong manufacturing report, which added fuel to what was already a fire. But beware, September (and most months, really,) has a tendency to start off strong – and end very weakly. We break it all down on this morning’s Markets Hub.

See-saw session for US stocks ends with bulls erasing yesterday’s decline.

Major averages spiked higher following improvement in ISM July services index, but stocks’ closest friend lately, the euro, decided to head in the opposite direction, almost straight down. Took a few minutes, but stocks eventually realized their dance partner had left the floor, and they immediately dropped sharply as well. As the euro stabilized so did US stocks; as euro rebounded, stocks did too.

Consumer discretionary sector leads; health care, materials also among best sector gainers. DJIA rises 44.05 to 10680.43, hits its highest closing level since May 13. Nasdaq Comp rises 20.05 to 2303.57 and has gained in three of the last four trading sessions. S&P 500 ends 6.78 higher at 1127.2, facing resistance between 1125 and 1130.

Today on the Markets Hub, we’re looking at the jobs outlook, including readings from ADP and the ISM, what that means for the stock market and the rally (not much,) and some good signs for media companies. All that in three minutes; you can’t beat that.

- The main difference between Citigroup’s (C) $75M settlement with SEC Goldman Sachs’ (GS) $550M settlement is GS was guilty of misleading clients while Citi was guilty of negligently misleading shareholders. But the public is much angrier over GS case, which the “Kid Dynamite” blogger finds hard to fathom. “People should be furious about this Citi case and settlement, but you’ve probably hardly heard a whisper about it.”

- Prospects aren’t looking bright for the restaurant industry. Same-store sales and customer traffic both declined for a third-straight month in June, Calculated Risk reports. “Restaurants are a discretionary expense, and this contraction could be because of the sluggish recovery or might suggest further weakness in consumer spending in the months ahead.”

- Roughly 25% of Americans sit in FICO’s least-creditworthy category, a significant jump from only 15% before the recession. “Some people will lament this, but it has a silver lining,” FusionIQ CEO Barry Ritholtz says. “Deleveraging is certainly a good thing, and forcing consumers off of the credit treadmill may actually help these folks over the long haul.”

- The commercial real estate market is getting ugly, slowly but surely. Delinquent unpaid balance for CMBS increased $3.1B in June to $60.45, and has more than doubled from a year ago, according to Realpoint. “This isn’t quite the disaster in the making that subprime was,” Yves Smith notes. But “I’m not sure why people say there isn’t a CRE crash. It’s just happening in slow motion, so far.”

- ISM manufacturing index fell for a third-straight month in July, but at 55.5, it exceeded economists’ expectations. “Bottom line, while the ISM remains firmly above 50, just ten of the 18 industries surveyed reported growth, with four reporting outright contraction and the drop in new orders is worth watching,” writes Miller Tabak’s Peter Boockvar. “With this said, the market is breathing a sigh of relief that while down for a third month, the ISM is still hanging in as inventory builds, albeit at a slower pace, and export growth continuing.”

- Newspaper advertising sales were less bad in 2Q vs a quarter ago. “But less bad is not the same as good — and the outlook for the remainder of the year is decidedly murky,” writes Newsosaur blogger Alan Mutter.

- A new website — JailbreakMe.com — has sprung up offering an easy way to hack, or “jailbreak,” an iPhone to run applications not authorized by Apple (AAPL).

- “This market is one that moves largely on the basis of economywide hopes and fears,” NYT’s Floyd Norris says. “Company specifics take a back seat.”

- “Remember when we weren’t allowed to say the word ‘recession?’ Like it was anathema?” Todd Harrison says at Minyanville. “Or when we weren’t ‘patriotic’ if we weren’t ‘bullish’ after 9/11?,” he recalls. “Is ‘deflation’ the modern day equivalent of ‘recession?’”

- Battle over the proposed Ground Zero mosque is picking up steam.

Hey, wha happen’d? As gloomy as Friday was, Monday’s twice as rosy, as just about everything just about everywhere is getting lifted higher. The spark today, as we explain on the Markets Hub, is the news out of Europe, where banks BNP Paribas and HSBC posted good financials and manufacturing data in a number of countries showed more strength than expected.

Is that a story you expect to last? Notice the yield on the 10-year Treasury (about the only assets not rallying), still below 3%. The bond market is telling a different story from the stock market.

- Financial stocks have hit bear market territory, while materials, energy, industrials and consumer discretionaries are getting close. “Unsurprisingly, it’s the defensive sectors that have held up the best since the market peaked on April 23rd, if declines of 9% to 14% can be characterized as holding up,” Bespoke says.

- It’s tough to ignore the increasing deflation risks filtering through the market. “The sure-fire economic solution to the mounting deflationary risk is a strong and sustained rebound in job growth,” James Picerno says at The Capital Spectator. “Unfortunately, the odds look high for a jobless recovery at the moment, thus the market’s outlook for a new round of disinflation, perhaps outright deflation.”

- All the bailout money that was dished out to the banking sector simply allowed the financial sector to avoid a vast restructuring. “The can was kicked down the road,” Barry Ritholtz writes, noting banks weren’t allowed to suffer the same destiny that happens to other insolvent businesses. “This was a terrible error, the greatest financial tragedy of the 21st century.”

- Despite the widespread opinion that double-dips are rare, data and indicators are warning that one is coming, John Hussman of Hussman Funds points out. His own firm’s recession warning composite is showing the same combination of factors that appeared in November 2007 and October 2000.

- ISM’s non-manufacturing report shows service sector activity slowed last month. “In yet another sign the economy is cooling substantially, three components of the June Services ISM are now in contraction,” Mish says. “This report was weakest where it matters most: employment, imports and exports.”

- Yahoo’s still searching for an ad sales chief. “We’ll see how it turns out, but as Yahoo just closed its second quarter, it’ll be important for some clarity around its most important business in its most important market, especially as its stock continues to its lackluster performance,” Kara Swisher writes.

- The likelihood of a “double dip” recession may be low, according to economists, but as Catherine Rampell points out at NYT’s Economix blog, the general public still seems pretty worried. Google searches for “double dip” have soared this year, she notes, with a specific spike beginning in May.

- Out of all the long-term unemployed, the older, more educated workers have the highest length of unemployment, Calculated Risk reports, citing BLS data.

- AgBank IPO totals $19.21 billion, still in the running for the biggest IPO ever.

- Brian Cashman says LeBron is going to be a Knick. Keep your fingers crossed. Oh yea, and LeBron starts a Twitter account today, tweets ONCE and has 114,000 followers and counting. Hey LeBron, how about throwing Market Talk some of your followers, eh?