Market Talk

Let’s start putting some of the pieces of this puzzle together, shall we?

The news has been almost uniformly bad the past two weeks, unless you were the one person in your office pool who had Virginia Commonwealth. But stocks have been on a tear. Why, exactly?

We have a few facts from which to start constructing a theory:

- On March 16, the yen spiked, reaching Y76 to the dollar. The next day, finance ministers from the G7 nations held a conference call and agreed to intervene in the forex markets to put a cap on the yen.

- The DJIA and S&P 500 hit their year low on March 16.

- The yield on the U.S. 10-year Treasury note hit a year low of 3.20% on March 16.

Since March 16:

- The yen has appreciated no further, and currently resides around Y82.88.

- The DJIA is up about 6.5%. The S&P is up about 5.8%.

- The 10-year Treasury yield rose as high as 3.49% on Tuesday. Through Tuesday, it had risen every session since March 16, a streak that has not occurred since 1990.

Do not think these various things are unconnected. March 16 was a pivotal day in the global markets.

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US stocks rise on light volume, as Treasurys sink again, despite a plethora of dour news both here and abroad, and you can be forgiven if that raises questions in your mind about just how fundamental — and how speculative — these moves are.

DJIA gains 81 (0.7%) to 12279, S&P 500 rises 9 (0.7%) to 1319, Nasdaq Comp jumps 26 (1%) to 2757. NYSE volume is about 3.5 billion shares, well below the daily average this year of about 4.5 billion. It’s the Dow’s seventh gain in the last nine sessions, which is now back within hailing distance of its year high of 12391.

Treasurys meanwhile log their ninth consecutive losing session; the yield on the 10-year is up across those nine sessions, something that hasn’t happened since 1990.

Now, here’s the news that brought all that about: housing prices fell, again, consumer confidence is down, S&P downgraded Portugal and Greece, Congress can’t agree on a budget, and the fighting in Libya rages. There’s more, of course, but you get the picture. Normally, a combination like that would not be a winning recipe for stocks. But these are not normal times.

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On today’s Markets Hub, we peer through the smoke clouding stocks, forex and oil, and find the common theme: cheap money.

There were two things I saw last week that put the fear of God in me. Both came Wednesday. One seems to be improving; the other remains a wild card, and that’s why I bring it up.

That was the first time I saw close-up pictures of the mangled Fukushima Daiichi nuclear plant. The walls that contain two of the reactors are completely gone. The upper third is missing from another. Seeing those pictures, it was pretty obvious to me that a total meltdown was a very real possibility. Those pictures were worth more than 1,000 words, and every word was absolutely shocking.

The Fukushima 50 have had some success in stabilizing the plant as of Sunday, and I fervently pray they are ultimately successful. God bless their courage. Were that others were so dedicated.

The second thing caught my attention Wednesday was the yen’s frenzied spike just after 5 p.m. New York time. The yen, which had been strengthening since last Friday’s earthquake, suddenly broke through all resistance and spiked higher. Lightning fast. Straight up. It was a black-swan kind of thing. Shorts were forced to sell, and that only contributed to the rise. It was chaotic.

“I can almost guarantee you that a few (hedge) funds out there were hurt very, very badly,” Dennis Gartman, who edits and publishes The Gartman Letter, said via email.  “No one ever escapes that sort of action entirely.”

I’ve had the feeling since last Friday that the ramifications of Japan’s nightmare are going to be larger than people initially suspected, and they are going to end up in places where people don’t expect, and in a world as tightly connected as the one in which we live, that increases the odds that one haywire event will have a cascading and destructive effect. Something like the yen’s sudden jerk has the potential to spark a global unwinding. It’s a scary thing to contemplate.

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There are an awful lot of big stories out there right now, and the yen is one of them, so we asked Brad Davis back to explain the latest moves in this critical market.

Stocks, bonds and commodities are generally higher around the world as the G7 agreed to move in the currency markets to stem “excess volatility and disorderly movements,” though that’s aimed at stemming the yen’s recent gains.

The yen fell to 81.42 per dollar from around 79 late Thursday in New York.

The Nikkei rose 2.7%, but finished the week off 10%. European stocks are higher and US equities are poised to build on yesterday’s rebound, with S&P 500 futures up 9.40points.DJ futures up 79.

Nymex crude oil is continuing its march past $100, rising 1% to $102.50/barrel. Many countries’ bond yields are down; the US 10-year Treasury down up slightly at 3.25%.

On today’s Market Hub, we try to get past the headlines and break down what’s happening with U.S. stocks and the Japanese yen, both of which are under varying degrees of pressure, despite today’s rise in stocks and easing in the yen.

US stocks tumble in a harried session, driven by fear over the continuing crisis at Japan’s Fukushima Daiichi nuclear power plant, as a small band of engineers races to avoid a catastrophe. The situation in Japan is still chaotic, and it’s clearly having an effect on investors.

Indexes went into a tailspin late in the morning after the EU’s energy commissioner suggested the situation at Fukushima Daiichi was out of control; the rebounded somewhat after Tokyo Electric, which runs the plant, appeared close to hooking up a new power supply that could run the pumps that provide water to cool the nuclear fuel.

Nikkei futures were down sharply, but also recovered some ground.

At the close, DJIA loses 242 (2%) to 11613, falling as much as 300 points intraday, S&P 500 slides 25 (2%) to 1257, Nasdaq Comp tumbles 51 (1.9%) to 2617. NYSE volume is heavy. Nasdaq, S&P now down for the year; Dow is close. Dow’s now down bit more than 6% from February highs.

For the Dow, it was the biggest drop since Aug. 11; the index has lost 431 points, or 3.6%, the last three sessions, and is down seven of the last nine sessions. All 30 of the index’s components fell today.

All ten of the S&P 500′s sectors fall, with tech and industrials falling the most. Materials and financials are close by. Tech’s fall was amplified by Apple, which got a rare downgrade, from JMP Securities, albeit to only neutral. Still, it was the first downgrade on the stock since October.

A lot of focus was on the Japanese yen, which hit a record high against the dollar as money continues to flow into the currency. Whether that money is for repatriation, or just speculators, isn’t completely known.

Equities are careening around the world after yet another explosion at the troubled Fukushima Daiichi nuclear-power complex and spikes in radiation levels.

The Nikkei tumbled 11% and most other markets in Asia and Europe are down at least 2%. Dow futures slide 245 points and the S&P 500 is off 32.

The sell-off is also occurring in other assets, with Nymex crude down 3% and gold falling 1%. But the dollar, lower against the yen, is surging versus the euro, British pound and Canadian dollar. The euro has dropped nearly 1% to below $1.39 after briefly getting back to $1.40 yesterday.

A flight-to-safety bid is also being seen in US Treasurys, with the 10-year yield falling to 3.26%.

Stocks are under pressure, more pressure now than they were when we taped today’s video. The S&P 500 has slid into this 1292-1288 band that’s offering some support, and so far that support is holding, albeit there have been a couple slips below it.