U.S. stock indices ended mixed on the final session of the quarter as the Dow Industrials and S&P 500 slipped, while the NSADAQ Composite held onto its earlier gains to close positive.  An afternoon rally in the price of crude put pressure on the broad market. 

Basic material, industrial and telecom shares gained ground; the other seven of the major 10 industry groups lost ground, led by shares of financials, consumer discretionary and energy.

The CRB Index rallied yesterday, driven by big price gains in cotton, the grains and the oil complex.  Now, cotton and the grains are just rebounding from recent weakness so it’s not like those commodities have made new highs – although cotton and corn are very near record highs.  But energy is another story as both crude and wholesale gasoline hit new post-crisis levels – crude closed at $106.25/barrel (crossing $107 this morning) and wholesale gasoline to $3.11/gallon (national retail average is $3.61).   These prices are a heavy weight on real consumer spending and the first-quarter GDP reading will reflect that.

The EU sovereign debt situation continues to deteriorate.  Portugal moved closer to a bailout as their budget deficit came in higher than expected and Ireland’s beleaguered banking system continues to sap government funds.  The EU bailout fund may stem this situation from encompassing Spain (which would take the crisis to a whole new level) for a while, but it merely kicks the can down the road.  The issue will only be resolved when these debt markets are forced to restructure.  Delay they will, but individuals and the European banking system will take losses. 

U.S. stock indices ended their sixth of the past seven quarters higher yesterday.  The second quarter of 2010 was the only of these official periods to get in the way with its 11.86% decline; the other six quarters that posted positive results averaged a gain of 11.15%.  Energy led the broad market higher for a second-straight quarter, up 16.29%.  Industrials and health care were the next best-performing sectors during the first three months of the year, up 8.20% and 4.99%, respectively. 

Market Activity for March 31, 2011

Sector Activity for March 31, 2011

Initial Jobless Claims

The Labor Department reported that initial jobless claims fell 6,000 to 388,000 last week.  However, this was shy of the 380K expected and the previous week’s results were revised up by 12K to 394K – so claims only fell relative to that revisions, the expectation for 380K was based on the belief that the previous week’s claims came in at 382K.

The four-week average rose 3,250 to 394,250.

Continuing claims were mixed as the standard issue (covering the first 26 weeks of joblessness) fell 51,000 to 3.714 million, while emergency claims (that bring those benefits out to as long as 99 weeks) rose roughly 18,000 to 4.362 million.  These continuing claims have shown significant improvement, but they’ve had so far to go that they remain off the chart nevertheless.  Total continuing claims will come crashing down back onto the chart when the emergency level of claims expire at the end of the year. 

Chicago Purchasing Managers Index

The regional factory activity surveys continue to illustrate that the manufacturing sector remains robust.  Yesterday the biggest regional survey of them all, the Chicago PMI, printed a reading of 70.6 for March (expected to come at 69.9), which is down slightly from the Feb. 71.2 -- but that Feb. reading level has been hit less than 3% of the time in the survey’s 44-year history and for the first time since 1988.

The internals remain super-strong.  Production and new orders chilled just a bit, but remained at very hot levels.  Order backlogs raged 7.8 points to 69.6 – a level not seen since 1974 (not sure we want any comparisons to that period, but that’s for another time).  Employment jumped 5.8 points to a reading of 65.6 – a level hit on only two other occasions, the last time being December 1983 when nonfarm payrolls were running at 365K/month during the six months that surrounded that reading.  For comparison, we’ve averaged 145K/month over the past six months, assuming today’s jobs report prints +200K. 

The prices paid reading also continues to increase, up 2.2 points to 83.4 in March – a number that has only been hit 3.5% of the time since 1980.  The measure spent most of the 1970s at this level or higher, but of course it did as the consumer price index averaged 7.2% year-over-year during that decade.   

Now, if only we saw this robust activity show up via higher GDP readings. On the previous occasions that Chicago PMI initially surged to current levels (1972, 1983, 1988) real GDP averaged 6.1% in the quarters surrounding those reading -- today we’re less than half that.  

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Have a great weekend!

Brent Vondera, Senior Analyst

Phone: 636-449-4900