U.S. stocks rallied for a fifth-straight session on Friday as the broad market bounced 5.35% last week to cut the correction (from the near three-year high hit on April 29) to 10.5%.  This occurred even as the financial system (not just in Europe but for the major Western economies) remains on life support three years removed from the fall of Lehman Brothers.  As a result, one has to view this bounce as very short-term in nature – traders seeking to pick up another 2-5% and then go away; and they got their 5%.

Telecoms, utilities and consumer discretionary shares led the market higher on Friday.  Energy, financials and basic materials were the worst-performing areas.  The high cyclical areas of the market have gotten crushed as economic growth prospects continue to deteriorate; financials, basic materials and industrials have taken the brunt of the hit year-to-date.

As last week was all about rallying, this week is starting off quite differently as Europe trades ugly this morning.  Everyone waits for Greece to default as the EU remains unwilling to get on with it, instead deciding to delay in their hope to buy time.

But buying time won’t work because Greece cannot climb out of its debt trap; they continue to depend on EU/IMF monthly funding just to pay their bills, which may very well reach the end of the road in October as European parliaments grow increasing disgusted with bailing out the PIIGS.  And things aren’t much better here at home as we engage in the same strategy of delay as we also hope to buy time.  In the process, our housing market continues to build a pipeline of distressed properties and Washington continues to spend more just two months following a debt-ceiling standoff in which we heard our politicians say real budget reforms were coming.

This will be a big week indeed as the IMF meets in Washington, we get a Fed meeting that will show Bernanke continues to implement yet more operations to thwart recession and we move yet closer to Grefault.

Market Activity for September 16, 2011

Sector Activity for September 16, 2011

University of Michigan Confidence

The UofM’s gauge of consumer confidence improved in September, but only from a reading in August that matched the worst levels of the financial crisis.  The increase to a reading of 57.8 (from 55.7 in August) is the second-worst reading of the year and the expectations component of this measure deteriorated to the lowest level since May 1980.

The headline index has two components: current conditions and expectations (meant to gauge consumers’ views of their finances six months out).  Current conditions improved, while expectations remains pretty much floored.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900