U.S. stocks, as measured by the S&P 500 Index, gained ground for a fourth-straight session yesterday (up seven straight for the Dow Industrials) as strong results from the latest retail sales report offset continued policy tightening measures in Asia. 

The International Council of Shopping Centers reported that same-store sales bounced 2.2% in the week ended February 5 – the market paid no attention to the sequential declines over the previous four weeks in which the index slid 5.5%. 

Consumer discretionary, financial, industrial and consumer staple shares outperformed the market.  Energy and utility shares were the losers.

This rally from the nefarious depth of S&P 500 666 in March 2009 is now 23 months long and the index has nearly doubled. 

It is only surpassed, in terms of a similar timeframe, by the March 1935 – March 1937 rally that surged nearly 132%.

So this bull market began in March (March 9, 2009); the previous bull run began in March (March 12, 2003); and the most powerful 24-month run (going back to 1927) began and ended in March.  I don’t know what to make of it, but it’s interesting.  What I do know is that two of these three events were cyclical bull markets within a secular bear.  We know what happened following the previous bull run, the broad market lost about 57% to what at the time was a 12-year low.  The 1935-1937 run ended badly as the S&P 500 slid 54%, and took another nine years to return to that 1937 high.  It obviously remains to be seen how this one turns out.

The PBOC (China’s central bank) raised its benchmark lending rate for a third time to 6.06% as the government attempts to head off accelerating inflation that has hit nearly a three-year high.  The move was expected but has pushed most Asian emerging-market stock indices lower.  This is one of the challenges, and also one of the paybacks to the aggressive stimulus the Chinese government implemented 2009-10 that’s been a major part of the global recovery.  Asian policymakers will need to walk a very fine line to orchestrate a soft landing – India, Indonesia, Thailand and South Korea are also in the process of tightening. 

The move had its effect on commodity prices, primarily oil and copper (those most-driven by Chinese stimulus).  Increases in the prices of gold, silver, cotton and aluminum helped to buoy the CRB Index, which gained ground for the session. 

Market Activity for February 8, 2011

Sector Activity for February 8, 2011

NFIB

The National Federation of Independent Business reported that its gauge of small business optimism improved 1.5 points to 94.1 in January, following a slight decline in December.  Over the past five months the index has slowly improved, but as the chart below illustrates remains well-below average and substantially below levels during the early stages of business-cycle expansion when it rises to readings of 100-plus. 

A number of key readings within the survey improved but, just like the overall measure, remain at weak historical levels. 

Plans to increase capital spending ticked up to print a net 22% from 21% in December – the average is a net 27.3% and hits 35% during early stages of business-cycle expansion; the expect higher sales reading improved a nice 5 points to 13% -- the average is 13.6% and hits 30% during expansion; the expect a better economy figure ticked up to a net 10% from 9% -- the average is 8.8% and hits 40% during expansion; the good time to expand reading held at 8% -- the average is 14.6% and hits 25% during expansion; and the actual earnings change improved by 6 points to -28% -- the average is -22.8% and closes in on zero during expansion. 

The improvement in many of these indicators would suggest more small-business hiring in the months to come, but because four of five of these key readings remain below average and are all well-below what we see during expansion, one can’t quite count on substantial hiring coming to fruition.  The plans to hire readings within this survey fell 3 points to a net 3% -- the average is 10.8% and hits 20% during expansion. 

That said, last week’s ADP employment survey showed a really nice increase in small business hiring, which one hopes materializes in official payroll increases a couple of months out.  So, there is some confliction between the two readings.  In any event, it appears unlikely we’ll see the consistent level of job growth needed to drive the unemployment rate much lower in any reasonable period of time. 

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900