U.S. stocks rallied again yesterday on another session of solid-to-strong earnings reports – the day’s economic releases weren’t quite so upbeat.  The gains sent the S&P 500 higher by 1.3% for the holiday-shortened week after beginning on a weak note as the broad market lost 1.1% on Monday.  The rally halted two-straight weeks of decline. 

The best earnings results continue to come from firms that receive most of their sales from overseas (specifically with meaningful exposure to Asia), from higher commodity prices, or both.  

Basic materials, tech, energy and consumer discretionary shares led the rally.  Consumer staples, utilities and industrials were the main laggards but did eke out gains. 

The Dollar Index recovered from Thursday’s intraday lows but still took another beating – down 10 of the past 15 sessions.  The only bounce the greenback sees is when fear arises – the twin peaks of fear in the chart below illustrate the run to the dollar (it’s a liquidity thing) when the financial crisis hit its crescendo and then again last spring when the EU debt contagion initially began to rage.  During normal circumstances, and periods of sane monetary policy, the greenback would tend to rise on strong domestic fundamentals – it’s hardly a perfect correlation, but vastly different than the trend we see today. 

The CRB Index has just about made it back to the post-crisis high hit on April 8 as the prices of industrial metals, silver, wheat, soybeans, sugar and the energy complex moved higher yet again.  Crude settled at $112.29/bbl and wholesale gasoline at a post-crisis high of $3.31, which is within 6% of the record high hit in 2008 when the price at the pump hit $4.31/gallon – national average is currently $3.85.  Don’t worry though, Mr. Bernanke says it’s not a big deal.

Market Activity for April 21, 2011

Sector Activity for April 21, 2011

Jobless Claims

The Labor Department reported that initial jobless claims remains above the 400K level – the first time we’ve seen back-to-back weeks of 400K-plus since January.  Initial claims did fall 13K to 403K after last week’s number was revised up to 416K from 412K. 

The four-week average hit 399,000.

Continuing claims decline as both the standard issue (covers first 26 weeks of benefits) and emergency level (extend bennies out to 99 weeks) fell.  The standard continuing claims fell 7K to 3.695 million and emergency claims declined 70K to 4.24 million. 

It’s nice to see continuing claims remain below the eight million mark for two week now, albeit slightly.  This is a very high level though, as the chart above illustrates, and is a function of some structural issues within the labor market (namely the fallout from overinvestment within the construction industry during the housing bubble) as 45.5% of those unemployed have been out of work for more than six months (6.1 million people).  It’s also a result of the fact that firms are forced to hold off on aggressive hiring in order to keep earnings growth elevated. 

The disturbing thing now is that initial claims remain at the 400K mark and can’t seem to continue the improvement that really began in early February.  This level on initials suggests that we’ll not see the job growth for April that is needed – looks like something around 175K, shy of the move to 300K in monthly payroll growth that we really need. 

Philly Fed

The Philly Federal Reserve Bank’s gauge of manufacturing activity within its region came in well-below expectations, but remained at strong level.  The measure, known as the Philly Fed, slid 24.9 points to a reading of 18.5 in April (expected to print 36.9) from the rare air of 43.4 in March – a level hit only eight times in the measure’s 515- month history. 

Nearly every segment within the overall index declined; although, most remained at good levels – the declines are just an easing from the outsized readings of the previous month.  Even the priced paid figure declined – although it too remains at one of the highest levels outside of the double-digit inflation rates of the 1970s/early 1980s.  The prices received number rose five points as manufacturers are beginning to pass along higher input costs. 

The employment number printed good numbers.   The number of employees slipped but the average workweek rose – the opposite of what we saw in the Empire reading when number of employees rose, yet average workweek fell. 

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Have a Happy Easter!

Brent Vondera, Senior Analyst

Phone: 636-449-4900