U.S. stocks rallied for an eighth day in 10 on Wednesday as the broad market quickly recoups that 6.4% slide that ran mid-Feb. through mid-March – just 15 S&P 500 points to fully recover.   The fact that the market continues to shrug off deep trouble in Japan, increasing Mideast tensions, EU debt-financing incapability, U.S. housing in double dip, and now Q1 GDP expectations that have been halved in a matter of about two weeks is not only amazing, it’s strange – even knowing the Fed is backstopping losses…for as long as that works anyway. 

The day’s economic data was helpful on balance, but again there is really no correlation between the quality of data and the direction of stock prices lately.  Nevertheless, it’s worth noting that the ADP Employment Survey estimated that private-sector job growth will come in at 200K for March, which follows the 210K increase in February.   The mortgage apps report was negative, but any data on employment overrides that release. 

Telecoms and utilities led the advance for a second-straight session.  Tech and industrials were the laggards, but all 10 major industry groups did close higher.

Crude barely budged yesterday, closing down just 54 cents to $104.26/barrel (and is back up to $105.39 this morning), even as the weekly energy report showed oil supplies jumped twice as much as expected.  Current U.S. stockpiles stand at 355.7 million barrels, which is 13% higher than the five-year average.  Fuel demand fell to the lowest level since November, and is 2.1% lower than a year ago when payrolls were slimmer by 1.2 million.  It appears a little demand destruction may be setting in at current prices. 

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U.S. stocks rallied on Tuesday, for no apparent reason really.  The day’s economic releases were ugly, not that that matters right now, and EU peripheral-economy credit spreads widened (heading back to record wides) -- even the credit rating agencies acknowledge that these governments will restructured debt, if not in the very near term by 2013 when the EU bailout fund essentially forces investors to take a haircut. 

But we are two days from quarter end, and since this will mark the six out of the last seven quarters in which stock prices ramp higher, mutual fund managers want to look like they were fully invested, or even overweight equities.  That is, the negative developments don’t seem to matter.  Volume has been as close to nonexistent as it gets for past three sessions.

Telecoms, energy, basic materials and utilities led the advance.  Financial, consumer staples and tech were the laggards but all 10 major industry groups did close higher for the session. 

The CRB Index slipped for a second-straight session but is pretty much holding at the post crisis high.  Live cattle prices hit at least a 30-year high yesterday.  The prices of crude and wholesale gasoline also rose as the two commodities reversed a couple sessions of weakness.  Crude closed at $104.72/barrel and gasoline at $3.05/gallon – retail gasoline hit a national average of $3.59. 

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U.S. stocks lost ground for the first session in four as the broad market slid in the final minutes of the session.  The Commerce Department’s release of February income and spending probably held the market up for most of the session, as the results looked good on the surface (we explain below why the report was weaker than the headline figures suggested), but just the talk of ending QE – which occurred Friday and over the weekend -- may have been too much for stocks to hold onto earlier gains. 

It really is tough to say though what pushed the indices lower very late in the session as volume was close to nonexistent, coming in 30% below an already weak six-month average.  Traders are probably sitting on the sidelines after the ramp up we’ve seen over the past seven sessions, there was one day during that stretch in which the market took a breather.  We’ve got the March jobs report at the end of the week and people probably want to get a better feel before making additional moves.

Telecom shares were the only major industry groups to close higher for the session.  Consumer discretionary, tech and basic material shares were among the worst-performing groups. 

The price of crude has pulled back for three days as there’s some profit taking occurring after a 23% run since mid February, closed at $103.74/barrel – down a bit more this morning on expectations that inventories rose two million barrels this week.  Wholesale gasoline also pulled back by about 2% to $3.03/gallon, but absent a deeper move, I wouldn’t expect much help at the pump as the spread between retail and wholesale has been below the roughly 65-cent average for several weeks.

The Dollar Index is showing a little life after hawkish comments from the Philly and STL Fed Bank presidents over the past couple of days – hawkish meaning they’re talking about cutting QE2 short and laying out a plan to unwind current policy.   Rally mode for the greenback will prove fleeting if this talk doesn’t turn into action as the market has heard this all before only to find that talk is indeed cheap. 

I doubt they actually follow through and cut QE2 short as the big guns within the FOMC (Bernanke, Yellen and Dudley) are QE addicts.  What is likely is that QE2 will be allowed to expire as originally planned on June 30 but the Fed will continue to re-invest paydowns, keeping their balance sheet bloated as they won’t want to actually reduce liquidity.  After that we’ll probably see QE return a few months hence as economic and market weakness sets in again. The Fed, unfortunately, won’t allow the market to work things out for itself – which will only delay ultimate economic repair as risk will continue to be mispriced and debt levels will remain heightened. 

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U.S. stocks gained ground for a fourth session in five Friday, getting a boost from Oracle’s strong earnings results; the enterprise software giant also raised their guidance for the current quarter. 

Mideast tensions continued to rage and the #3 reactor at the Fukushima nuclear plant reportedly has a larger radiation leak than previously believed – and this weekend it was reported that the #2 reactor has new problems problem, they don’t know what they’ll do with all the contaminated sea water that’s been pumped in, and 6.5 magnitude quakes continued to hit the region as early as last night.  However, the market continued to overlook these issues.  This nonchalant behavior has me very concerned; although, I’ve been concerned since the S&P 500 blew past my fair value estimate of 900-950, yet the rally carries on as the broad market currently stands 38% above that level. 

The press reported that the latest revision to Q4 GDP was also helpful to trading activity.  I heard a couple economists suggest that the GDP reading of 3.1% was much stronger than the print suggests because it occurred even as the inventories component dragged heavily on the reading.  I’d like to believe this is something to get excited about, but it appears the consumer spending results that offset the drag from inventories stole some activity from future quarters.  Further, I heard no one mention that the after-tax profits measure within the GDP report (known as economic profits) declined for the first time since 2008 – this profit measure is typically a good indicator of the direction accounting profits take a couple of quarters out.

Energy, telecoms and basic material shares led the broad market higher.  Utilities, tech and consumer staples were the laggards, but all 10 major industry groups did close higher.

For the week, the Dow Industrials rallied 3.05%; the S&P 500 gained back 2.70%; the NASDAQ Composite recouped 3.76%; the Dow Transports recovered 3.00%.  Mid and small cap stocks were also up around 3%.  The broadest measure of international stocks gained back 3.41%.  Over the past seven sessions, the S&P 500 has recovered two-thirds of the month-long slide that began February 18.

Portugal’s Prime Minister stated Friday that the government will not need a bailout.  This pretty much seals the deal as leaders in Greece and Ireland made identical statements just before accepting checks from the EU bailout fund that kept those governments from defaulting on interest payments. 

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U.S. stocks continued to rebound, up five of six days, from the mini-slide that had sent the broad market 6.4% below the 32-month high touched on February 18; the S&P 500 has recovered about two-thirds of those losses – volume has been very light though over the past three sessions. 

This market continues to look trouble in the face (if only for this week) and power higher.  To wit, so it looks like nuclear reactor troubles in Japan will take longer to resolve,  uncertainties rage in that hotbed of radicalism known as the Mideast, and Portugal’s government effectively collapsed as they couldn’t agree on the austerity package – a plan that was the last ditch effort to afford another $100 billion check written by the bailout fund. 

And for the EU, the big question is whether Spain goes running for a bailout, which seems more likely than most appear to estimate when one considers the state of their banking system, a housing market that reportedly remains in shambles and 20% joblessness.   None of this suddenly matters to Mr. Market and the story is that the lift has come from estimates that the destruction in Japan will boost global GDP when the rebuilding process begins.  This is a myopic and short-sighted view, and frankly so consensus it’s lazy.   I’ll explain below.

Tech, consumer discretionary and health-care led the way – normally a strange mix of cyclicals and safe havens, but we’ve seen that many times before in this cycle.  Energy and utilities were the laggards, but did close higher as all major sectors did. 

The Dollar Index slumped again on Thursday as the measure remains in the 75 handle – a level that will be responsible for delivering double-digit import price inflation by May on the current trajectory. 

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U.S. stocks shook off a housing market that is in full double-dip mode and escalating uncertainty in the Middle East to reverse early losses and scream higher from the day’s nadir.  The broad market was driven by basic material shares as it’s seen as a primary beneficiary of the coming Japanese rebuild. 

But strangely consumer discretionary shares also performed very well.  And here’s why it’s strange:  One constantly hears that housing no longer matters because it accounts for a measly 2.2% of GDP at this point (that’s down from 7% in 2006).  But that take is simplistic as it forgets what continued home-price declines mean for household finances and thus consumer activity, which accounts for 70% of GDP.  The more affluent end of the consumer has the stock market to offset this cruel reality, but sorry to say (even though the higher-end segment accounts for roughly half of spending) much of the consumer base doesn’t have the stock-market wealth effect to fall back on.  

Further, due to the pathetic amount of equity in the home these days (roughly 30% of all mortgages are either underwater or have less than 5% equity, according to CoreLogic) price declines only exacerbate the situation, which means more “walk-aways” and thus more foreclosures – beyond hurting consumer activity it puts pressure on banking-sector earnings, a key driver of overall profit growth. 

And while we’re talking about strange developments, I’m not sure the market has ever been hit by so many various risks.  To wit, we’ve got increased Mideast tensions and who fills the vacuum, EU fiscal mayhem, Japanese radiation levels, domestic debt, housing, a persistent LT unemployment problem, real wages that are about to turn negative again and a coming compression of profit margins – both are function of rising costs. Nevertheless, the market more or less shakes these problems off.  I know Bernanke is there with his QE backstop but when we’re seeing it’s in the process of adding to the problem list I’m not sure how much juice the old strategy has left.   And I’m not focusing on the negative for the fun of it, but a true analysis of the market environment cannot ignore these issues.

Crude is powering higher to $106.36/gallon this morning and the Dollar Index continues to show the buck is losing value again a basket of currencies.  I think it’s important to note that the euro has hardly lost ground again the greenback even as the EU debt contagion shows no sign of waning.

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U.S. stocks ended a three-session winning streak as traders seemed to step back and watch to see how things play out in Japan, the Mideast and EU. 

The session was rather boring in fact as the broad market traded in a tight range on low volume.  The telecom, utility and health-care sectors managed to close higher.  Industrials, consumer discretionary and financials were the biggest losers.

The Dollar Index closed flat as it lost ground against the pound, Swiss franc and the yen (no yen intervention yesterday), while it gained against the euro and Canadian dollar.

Crude closed up 1.6% to $104/barrel, pushed higher by news that the Israel/Hamas conflict intensified – and up another 1.4% this morning to $105.40. 

While yesterday’s trading activity was relatively dull, there were plenty of other things brewing even beyond develops in the Mideast and Japan…more on that below. 

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A picture is worth a 1,000 words, so I will let the chart below do most of the talking today.  The data comes from a study conducted by DALBAR, Inc., a leading financial services market research firm, that examines how investment behavior affects investor returns.

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U.S. stocks gained good ground Monday, extending the rally to three days – a move that’s recovered half of the past month’s losses.

Yesterday’s session was propelled by the announcement that AT&T plans to buy T-Mobile USA; although, it must ultimately pass antitrust scrutiny. M&A activity almost always gives the market a boost and yesterday traders liked the fact that a large company showed the confidence to engage in a major deal even in the face of swirling “black swan” events.   In terms of this three-day rally, that G-7 currency intervention, may just have returned life to the yen carry trade – that trade basically died on Wednesday night when the yen strengthened beyond belief, but now that the G-7 has placed a floor under $/yen life has returned to an old standby for the stock trader.

I don’t think one can chalk yesterday’s rally up to an easing of exogenous risks. Surely this past weekend it appeared like the Japanese nuclear fiasco had improved as it was reported that TEPCO hooked power up to all six reactors.  However, yesterday morning we woke up to find that the most troubled number 2 and 3 reactors had black smoke billowing from them once power was connected, which forced a disconnect of that power supply.   (This morning we hear that all reactors have been connected again but not switched on as it’s unclear the water pumps will work.)

Further, uncertainty in the Mideast also increased as it looks like a military coup is in the works within Yemen – we’ve been backing that president as a means of relative stability.  Add this onto Bahrain, Syria, Libya, Egypt (which isn’t even on the map of concern any longer with what’s occurred lately) and Hamas looking to cause trouble again and that picture remains an ugly one with Islamists looking for opportunities to fill the void. 

Energy, industrials, tech and basic material shares all outperformed the broad market.  Telecom was the only group out of the 10 majors to close lower for the session, as shares of American Tower (AT&T won’t have a need to build more infrastructure now that they’re getting it with the T-Mobile purchase) and Sprint (which is left as a weaker player) got hammered. 

The greenback has moved into what I see as the danger zone of the 75 handle on the Dollar Index (DXY) as it closed at 75.40 yesterday, and is quickly heading for 74 this morning.  The G-7’s intervention may be helping the dollar against the yen, but the buck continues to lose ground against the euro, pound and Canadian dollar.  If 75 on DXY doesn’t cause trade and currency wars (a 1930s redux) then it will most certainly engender import prices to double-digit increases; it may just incite overall consumer inflation, beyond food and energy prices, to harmful levels – the only thing that will stop it is an economic environment that remains too weak. 

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U.S. stocks started the session up strong, but gradually lost ground as pictures were released showing TEPCO’s managing director in tears after admitting that the radiation leak is worse than previously admitted and Mideast tensions began grabbing headlines again.   Still, the major indices held onto some of the early gains and managed to close higher. 

Financials, telecoms, industrials and consumer staples led the broad market’s gain.  Utilities and tech underperformed, but did close higher.  Energy and consumer discretionary shares closed lower.

Oil was moving higher after the UN Security Council authorized a no-fly zone for Libya, then quickly retreated after it was reported that Gadhafi halted all military operations. But apparently that was a lie – imagine that – as reports stated his assault was still on.  Crude bounced back as a result to close slightly higher at $101.58/barrel – up to $103 this morning on the Libya bombing.

For the week, the Dow Industrials closed down 1.54%; the S&P 500 slipped 1.92%; and the NASDAQ Composite gave back 2.65%.  This marks the first back-to-back weekly losses since the market was in trouble back in the summer before Bernanke came to the rescue with his now famous August 27 more-QE-to-come speech. 

Exogenous risks are prevalent (the Japanese disaster and escalating Mideast troubles – the bombing of Libya has begun, increased tensions near Saudi Arabia, and Hamas firing mortar shells into Israel again), so we’ll see how the Bernanke-backed market responds this week.  Futures are pointing to a strong open, probably mostly driven by the AT&T’s announced purchases of T-Mobile USA, but the M&A boost is usually only good for a day.  Within a couple of sessions we’ll see how traders respond to these risks. 

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