U.S. stocks rallied for a fifth-straight session to close the week up 5.4% (although, by watching CNBC one wouldn’t even have known the market was open Friday as they literally talked about the DSK thing the entire day).  The move made a large dent in erasing the 7.0% slide that occurred over the better part of the previous eight weeks.   Dave Ott is calling this rally “a celebration of the end of QE2 – QE who?”

Now, this bounce has occurred on weak volume, meaningfully lower volume than the downside move exhibited over the previous weeks.  But does any of that really matter?   I’ve been talking about the lack of “high-powered” rallies for a long time now, yet the major indices remain near their recent highs.

Consumer discretionary, industrials and tech led the way on Friday.  Consumer staples, basic material and energy were the laggards, but they too posted nice upside.

The CRB Index slipped (one of those rare occasions these days when stocks rally) as the measure was pressured by a big drop in corn and silver – corn prices have gotten killed over the past couple of week, with big down days of late after the latest crop report showed farmers got more in the ground than expected.  Crude closed lower, gasoline higher.

Market Activity for July 1, 2011

Sector Activity for July 1, 2011

ISM Manufacturing

The Institute for Supply Management’s gauge of manufacturing activity improved in June to a reading of 55.3 from the 53.5 hit in May (the expectation was for a decline to 52.0).  While the reading had been running at the hot level of 60 for several months, it’s still helpful to see it remain in the mid-50s, which is a good level.

So our manufacturing, in general, appears to be holding up; we’ve seen some ugly regional figures over the past couple of weeks but this national number remains in a good range.  One can’t say the same for global PMI’s though as they are falling all around.  (PMI stands for Purchasing Managers Index; it’s the major gauge of manufacturing activity – we  in the U.S. changed the name to ISM but most of the world still uses PMI).   China and the UK have printed numbers very close to contraction, while Italy’s did fall to contraction territory in its latest report.  While the U.S. reading has bucked this trend, the internals of the report weren’t all that stellar.

New orders rose only slightly and remained at a weak 51.6, and the backlog of orders fell to contraction mode with its 49.0 print (anything below 50 is contraction).  Export orders weakened again, down to 53.5 in June (was running at 60 for several months), and import orders is right at the precipice as it printed 51.0.  The overall index got its boost from the inventory segment (accounting for more than half of the increase), which jumped more than five points to 54.1.   But you don’t exactly want the inventory figure driving the number, not with new orders barely in expansion mode.

The bright spot of the report came from the employment figure, which posted a strong 59.9, up nearly two points.  Friday’s employment report will need all the manufacturing payroll growth it can muster.

U of M Confidence

The final print from the University of Michigan’s consumer sentiment survey for June came in worse than previously reported and meaningfully weaker than the May print.   The headline reading fell to 71.5 (72.0 was expected) after May’s 74.3.   The measure remains well below the historic average of 85.9.

Have a great day!

Brent Vondera