U.S. stocks gained ground for a second day on Wednesday, and if not for Monday’s fractional decline the broad market’s re-rally would be two weeks in length.  As a result, the S&P 500 has inched closer to the 15-month high hit on January 19. 

The tech-laden NASDAQ Composite led the way.  Mid and small-cap indices also out-performed the broad market. Shares of Travelers, Chevron and 3M weighed on the Dow Industrial Average, which lagged the other major indices -- a big day from Boeing (added 17 Dow points) kept the index in positive territory. 

Financials, tech and energy were the leaders for the session – although as mentioned above Chevron didn’t follow other energy names.  Telecom, consumer staples and basic material shares were the three of the 10 major sectors that closed lower on the day.

On the sovereign debt problems over in Europe, former European Commission President Romano Prodi stated: “For Greece the problem is completely over. I do not see any other case now in Europe.”  I don’t think comment on those remarks is necessary. 

Market Activity for March 10, 2010

Crude

The price of crude rose above $82/barrel yesterday after the latest weekly energy report showed oil supplies rose less-than-expected – up 1.43 million barrels last week when a build of two million was expected.  Stockpiles of gasoline dropped 2.96 million barrels, largely due to refineries idling units (which was probably because of retooling to produce mandated reformulated blends for the summer months) but demand increased marginally too.  Daily fuel demand remains about 7% below the average but we’ve had two weeks of increase now, so we’ll take it.

Also supporting the price of crude, OPEC raised their forecast for world oil demand by roughly 100,000 barrels to 85.24 million per day.  For their own crude exports (the cartel supplies roughly 35% of the world’s oil consumption), they boosted the forecast by 200,000 to 29 million barrels/day.  They did caution that the increase is dependent upon a sustained global economic rebound.  Well, what isn’t? 

That’s just it.  If this recovery is lasting, the handoff from massive public-sector stimulus to the private sector goes smoothly, then everything from profits, energy demand, capital spending, job growth and incomes will rebound in a durable manner. If not the rebound is largely a mirage.

Mortgage Applications

The Mortgage Bankers Association reported that its applications index rose 0.5% in the week ended March 5, marking the second-week of advance after four weeks of decline. 

Applications to purchase a home rose 5.7% after the prior week’s 9.0% increase, so we’re seeing some bounce back after this segment of the index got crushed back down to a new 13-year low two weeks back.  Some warmer weather is showing the miserable sales numbers of the last three months were at least partially due to the snowstorms, which we discussed last week. 

Refinancing activity slipped 1.5% after a 17.2% jump in the week prior.  The rate on the 30-year fixed mortgage averaged 5.01% nationwide last week, up from 4.95%.

Wholesale Inventories

The Commerce Department reported that wholesale inventories slipped 0.2% in January (forecasted to gain 0.2%), following a downwardly revised 1.0% decline in December.  This back to back decline in distributor stockpiles ends a two-month advance that many were viewing as the beginning of something durable. 

The sales data did rise a strong 1.3%, which follows a 1.2% advance in December and brings the streak of sales gains to nine months.  Merchant sales are up 10.5% from the depressed levels of a year ago (but still 12.5% lower than the peak hit in June 2008).

So the report is a bit conflicting.  The continued rise in sales is very encouraging, yet the unwillingness to allow inventories to build from what is now a new record low inventory/sales ratio (just 1.1 months’ worth of supply on hand) illustrates that merchants lack the confidence sales will continue to trend higher.  

We’ll get the business inventories figure on Friday, which will include retail stockpiles.  If that reading fails to rise, it will get the quarter started off on a weak note and the inventory boost to Q1 GDP is likely to be substantially weaker than it was in the fourth.  Two of the three ingredients for a huge inventory dynamic to propel GDP are in place, but without confidence it ain’t happening; without end demand the sales trend will not be sustained…and an actual restocking cycle will be delayed. 

Have a great day!

Brent Vondera, Senior Analyst

636-449-4900