U.S. stocks rallied for a second-straight session on Friday, nearly erasing Wednesday’s losses, on the latest hope that Europe will get things right and a bounce in the U of M’s consumer confidence measure.

Consumer discretionary, basic materials and industrials performed the best.  Telecoms, staples and utilities were the relative losers.

Traders weren’t just interested in taking on more equity exposure but they were happy to bid crude-oil higher too, WTI (West Texas Intermediate) closed at $98.99/bbl.  I’ve noticed the wholesale price of gasoline hasn’t quite followed oil higher, which means profit margins for refiners has declined – it’s actually plunged 45% over the past most.  I would imagine this will lead to less refining activity, which will push gasoline prices higher over the next few weeks unless crude reverses course in quick order.  Bottom line:  I don’t think the current state of the U.S economy can withstand WTI near $100 and Europe definitely cannot withstand $114 Brent, which is where that closed.

And to Europe, the upper house of the Italian Parliament approved the debt-reduction measure on Friday -- you know, the one in which the centerpiece is to increase the retirement age by two years (from 65 to 67) by 2026.  What austerity!  The bill passed 156-12.

For those who know a little something about Italian government, you may be wondering how a vote goes 156-12 for a Senate that involves 315 members.  Well, the opposition didn’t participate in the vote.  That means nearly half of the upper house disapproves of the measure – it appears they were happy to allow the thing to pass as it meant good riddance to Berlusconi (he agreed to resign once it passed although he’s already begun to stage his comeback).  So combine that with the reasonable belief that the Italian people haven’t the will to absorb meaningful austerity (and a plan that’s being pushed by a non-elected individual who has been appointed “Senator for Life” will make it even harder to swallow), I think this vote is more a fantasy that real reform will occur than the reality.  We shall see.

Market Activity for November 11, 2011

Sector Activity for November 11, 2011

U of M Confidence

The University of Michigan’s preliminary look at consumer sentiment for November (the final will come at the end of the month) bounced 3.3 points to 64.2.  This is still a very depressed level, not just from a historical perspective but for the year as the high print for 2011 is 74.3 (hit in May).  However, the gauge is bouncing from the plunge that occurred in August – a level that nearly took out the lows when the financial crisis hit its crescendo in late 2008.

The other two major confidence readings have yet to show similar bounces.  We won’t receive the November result from the most-watched confidence measure (the Conference Board’s gauge) until the end of the month, but the October reading fell to the lowest level in the measure’s history outside of the 2008-09 lows.  And Bloomberg’s measure, which offers a weekly look, remains at its historic low.  So personally, I wouldn’t get too excited about U of M unless these other gauges begin to show some life too.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900