U.S. stocks extended their latest rally to four sessions on Friday, pushing the broad market higher by 1.96% last week and to a near three-year high.

Energy, industrials and consumer staples led Friday’s rally.  Telecoms, financials, health care and consumer discretionary were the losers, all closing lower for the session.  

The Dollar Index fell again, not sure I’ll continue adding this to the pre-table segment any longer as it’s become a foregone conclusion – down nine sessions in a row and 19 of the past 25. 

The CRB Index powered to a new post-crisis high as 15 of the 19 components rose.  The index was led by the price of cotton, corn, wheat, the precious metals and the energy complex.  The prices of copper, hogs, sugar and cattle were the only components to fall.  The price of crude hit $113.70/bbl and wholesale gasoline up another four cents to $3.46/gallon – the national retail average has hit $3.95 this morning. 

The big news of the day, and of the 115 months since the 9/11 attack, is that the high-value target (HVT) that was Osama bin Laden has been killed in Pakistan (where plenty of intelligence people have said he was all along).  His demise came not in a cave, but in a multi-million dollar compound that was reportedly built in 2005 – a multi-million dollar compound without phone or internet service, that seems like it should have been a pretty big clue. 

Authorities are very vigilante right now as one has to expect sleeper cells have been tasked with retaliation to this event for years, so it may be a tenuous few weeks even as this is a huge victory.  The price of oil and gasoline are down about 3% on this news.  It would be nice to get crude back to the low-$90s level – a price at which was simply Fed driven as the last $20 has been on increased MENA tensions.

Market Activity for April 29, 2011

Sector Activity for April 29, 2011

Personal Income & Spending

The Commerce Department reported that personal income rose 0.5% in March (beating the 0.4% estimate) as every segment contributed to the increase, and is up 5.3% over the past year.  Disposable income (after-tax) rose 0.6%, and is up 4.6% over the past year.

Wages & salaries rose 0.3% during April and are up 4.4% over the past year (so we’re at the point at which Keynesian economists can no longer say inflation can’t occur  – even average hourly earnings, which include plenty of low-paying jobs, are up 2.8% over the past year.)   Proprietors’ income rose 0.4%, and is up 6.4% y/o/y.  Dividend income jumped 1.1%, up 7.3% y/o/y.  Rental income continues to surge (dang, according to the CPI rents are flat), up 2.7% for the month and 12.1% over the past year.  And government transfer payments made a comeback by jumping 1.1% for the month, up 4.5% over the past 12 months. 

Now, these income numbers aren’t that important to the earner from a nominal sense as they must contend with rising costs.  Adjusted for inflation, disposable income was up just 0.15% for the month and 2.5% over the three past months at an annual rate (and would surely be weaker without the temporary payroll tax reduction that took effect in January). Wages & salaries (which is the income number shared by most workers) were down 0.2% for the month and negative last three months annualized.

The same is true for the spending side.  Nominal personal spending was up strong, rising 0.6% in March (0.5% was expected).  However, most of that increase was due to rising prices; adjust for inflation and spending was up just 0.17%. 

The point is that as QE has helped to goose activity, it always had an ugly side to it as rising costs are beginning to harm economic activity. 

Chicago Purchasing Manager

The Chicago PMI (the gauge of factory activity within possibly the most important manufacturing region) decelerated but remained at a hot level in April.  This marks the fifth of the regional manufacturing surveys that has slowed for April, but this one much less meaningfully. 

The reading slipped to 67.6 (expected to come at 68.2) from the rare air of 70.6 (the 70 handle has only been hit on two other occasions over the past 30 years – one has to go back to the double-digit inflationary environment of the 1970s to find any consistency above this mark). 

Nearly all of the sub indices declined as new orders fell eight points to 66.3; order backlogs dropped seven points to 62.4; employment fell two points to 63.7.  Even prices paid fell nearly two points to 81.8. 

Still, all of these levels remain at pretty robust marks from a historical perspective, which unfortunately includes prices paid.  In fact, the price paid figure has never been this high during a period of such low-growth period.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900