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2/28/11
Close:
Stock traders pushed the market higher into the close, and why not? It makes sense. Tomorrow is the first of the month, and the track record of stocks on the first day of the month is stellar. This is the day you see a lot of 401k contributions put into play. For seven consecutive months and fourteen of the last sixteen months the S&P has rallied the first day of the month. This certainly favors another up day tomorrow, and traders are well aware of this. The price of oil was the excuse given for the late rally as oil fell to below $97 a barrel, but my guess is that traders were set on getting set for tomorrow regardless of the news. The Dow closed higher by 97 points and those 30 stocks easily outperformed the rest of the market. The NASDAQ rebounded from being down most of the day but closed up only 1 point. The S%P gained .6%.
The bond market surprised me today as prices did not move lower after month-end buying subsided. The 2-year closed at .68%, the 5-year 2.13%, and the 10-year closed at a yield of 3.41%. You might recall that earlier this month the bond market was given up for dead as long-end yields rose into new territory. But for the month, there was little change. The 2-year closed higher by 10 basis points and the 5-year by 19 b.p.s. The 10-year yield rose by only 4 basis points, and the 30-year bond yield actually fell this month by 8 basis points. Given all of the negative psychology in the bond market, that’s pretty good performance.
Speaking of performances, Ben Bernanke will testify before the Senate tomorrow on the state of the economy. I doubt we’ll hear anything new from the Chairman. He has been steadfast in defending QEII while downplaying QEIIs impact on commodity prices. I would like to see some senator grill him on this, but he will likely skate by on this one. We’ll also get the National ISM Manufacturing Index and vehicle sales.
Update 11:50 a.m.:
Stock traders overcame the mid-morning swoon that saw the Dow fall from +102 to up only 38 points, and the Dow is now higher by 75 points heading into the final hour. The price of oil might be helping now as it has declined by $1 after being unchanged most of the day.
Bond prices were up earlier but only slightly. Prices are now mostly unchanged. The 2-year is .69%, the 5-year 2.14%, and the 10-year is 3.41%.
I’ll be back with the close and a look ahead at tomorrow.
Update 10:05 a.m.:
ABC’s Christiane Amanpour scored a big “get” interviewee. She has just finished an interview with Qaddafi. Turns out, he is just as nuts as you think he is. He insists he is firmly in charge, the people love him, the protesters are either on drugs or with al qaeda, and many of the so-called protests were actually in support of him. This hasn’t had any big impact on oil as yet, and the ravings of a mad man probably shouldn’t. Stocks have slipped since the report, but that might be just a coincidence. The Dow is now higher by 50 points and the NASDAQ is actually down 10 points.
The 2-year is .69%, the 5-year 2.13%, and the 10-year is 3.41%.
Update 8:45 a.m.:
The Dow traded as high as +102 but has retreated to +70 points. The S&P is up about .4%, but the NASDAQ is unchanged. Volume is surprisingly light for the last day of the month. Oil has not been a major factor today, other than the fact it has not been a factor. Oil is trading quietly at just below $98 a barrel.
As mentioned earlier, I expected bond prices to retreat after the month-end buying. But so far, I’m wrong. Bond prices are trading very steady with little movement one way or the other. The 2-year is .70%, the 5-year 2.14%, and the 10-year is 3.42%.
I failed to comment on the Oscars last night. Of course you know The King’s Speech won Best Picture. If you read my Friday closing comment, you might remember my “Oscar Curse” warning. The last time a picture won that was based on royalty was in 1987 with The Last Emperor. Of course 1987 was the last great stock market crash. Of course I pointed this out with tongue in cheek, but just in case the stock market collapses this year – remember you heard it hear first. Can I copyright that?
The telecast last night had to be one of the dullest on record. There was one moment of interest to me at least. The Inside Job won Best Documentary. This was a film about the 2008 financial meltdown. The film was great and sadly very accurate. On winning the award, the filmmaker veered from the usual thank you’s for a moment to point out the shame that not one single Wall Street financial executive is in jail for the havoc in which they played a huge role. I don’t know if anyone should be in jail but, other than this one man, the lack of anger and outrage at Wall Street exhibited by the public is truly astonishing. There seems to be plenty of rage these days about the impact of that epic disaster, but it seems to be misplaced anger for the most part. Without a doubt, Wall Street has done its best sales job ever on the American public.
Update 6:50 a.m.:
The Chicago ISM Manufacturing Index showed a big jump from 68.8 to 71.2. While this is just a regional index, it’s often used as an omen for the National ISM index. That one will be out tomorrow. This didn’t have a market impact as stocks were already higher.
Stocks came out of the gate strongly, as expected. The Dow is up 70 points. Bond prices remain unchanged on the day, but prices could fall later as month-end buying is completed. The 2-year is .71%, the 5-year 2.14%, and the 10-year is 3.41%.
Morning Comment:
Stock futures are trading higher this morning in pre-opening trading for a few reasons. Oil is trading slightly lower this morning and below $100. That is the first positive. Second, the dollar is weak against most all currencies, especially the euro. The weakness in the dollar is being attributed to the expectation that Ben Bernanke will of course confirm “low rates for an extended period of time” when he addresses the Senate tomorrow while the ECB’s Trichet will start warning of tightening in Europe when he speaks on Thursday. Stocks like this as traders think the weak dollar will push asset prices higher and drive U.S. revenues from foreign operations higher.
Stocks are also higher partially because traders simply want to end February on a high note after a week of doubt. Risk was re-introduced as a concept to the markets last week, and traders are anxious to dispel any thoughts that risk has returned to the stock market for good. Dow futures are trading higher by 55 points in early pre-opening action.
While oil is trading quietly today, there is little chance we’ve heard the last disturbing news from the oil region. The pot is still boiling; it’s just not yet boiling over. We can’t really relax until we hear that conditions are back to normal in Bahrain, Yemen, Oman, and many other spots.
Surprisingly, bond prices are starting the day close to unchanged, but this is likely due only to month-end buying by bond index fund managers. Once that is done, bond prices will be vulnerable if stocks do rally today. The 2-year is .71%, the 5-year 2.14%, and the 10-year is stable at 3.41%.
In Friday’s close I mentioned there were three big events coming this Friday. It appears that one of the three will be kicked down the road. Friday was the day the federal government would be facing a partial shutdown, but it’s now likely some agreement will be made to delay that possibility for two weeks. The second big event is unavoidable. We will get Nonfarm Payrolls on Friday. Economists are looking for a 200k gain, which would be the first number in many months that could be considered “good.” But the Bureau of Labor Statistics has proved that its magical black box is capable of producing some big surprises. The number could easily be 50k or 350k. And God only knows what the BLS will do with the Unemployment Rate. Still, we’ll go into that number Friday acting like it will mean something.
The third event on Friday will be the possible lockout in the NFL. Without a doubt there will be more angst about this event than either of the other two.
2011 – Forecast from the Mount
January 11, 2011
By this point in time you’ve probably read so many “Year Ahead” forecasts you could easily write your own. Or perhaps you haven’t actually read full reports but used them as sleep aids. Some are very good at that. On television, multiple economists and market pundits have been on air and delivered forecasts like they were reading the Ten Commandments.
1. Stocks shalt go higher by 10% or greater.
2. Thy ten-year Treasury note shalt yield 4% or more.
3. More men shalt labor and bringeth down the Unemployment Rate to 8.5%.
4. Ben Bernanke will keepeth the funds rate at 0-.25% until late 2011 or early 2012.
5. Thou shalt not covet thy investment bankers’ bonuses; they earned them.
6. The government shalt spend less but tax cuts will resulteth in stronger growth.
7. Businessmen will cease hoarding money and invest in the future.
8. The housing market will riseth from the dead through an unexpected miracle.
9. The money-lenders will finally decide to lend money to the unwashed masses.
10. If we falter, the rest of the world will lead us to the Promised Land as the de-coupling theory hath prophesied.
With apologies to Moses, I think that about covers the consensus forecast. The point is that forecasts are not to be taken as gospel, no matter what the source or how seriously delivered. But forecasts are good at helping us set parameters for expectations, both high and low, and provoking us to think about how we can manage through uncertainty. At least that’s how I’m justifying giving you one more forecast – mine.
Instead of burying you in numbers and data (I’ll do that on the course of the year), I want to hit on the key topics that I think will be important for 2011, and I’ll venture a guess on how they will play out. There are so many moving parts to the year ahead; we know there will be some big surprises, both good and bad. I’ll try to help identify some indicators you should watch for signs of unexpected changes. Finally, I will add the 11th Commandment for 2011 –
11. Thou shalt do good and have a good time.
Time to Run With or Away from the Herd?
As Winston Churchill never said, “We have nothing to fear but fearlessness itself.” It’s been many years, perhaps since the beginning of 2000 (dramatic pause for remembering), that the consensus on the outlook for the year has been as overwhelmingly bullish. Among Wall Street’s mainstream analysts, “bearishness” seems to be defined as those expecting only a 10% gain for equities. From investor polls, surveys, etc. of all sectors of investors, amateur and professional, bullish readings are at extreme highs and bearishness at extreme lows. If you can worry about only one thing in 2011, you might want to consider this ominous development. Can that many people be the right?
The fact is, that many people can be right for a while. Facts eventually overwhelm inflated and unmet expectations. We’ve often seen markets seemingly defy logic merely due to the strong beliefs and expectations held by the majority. I’ve seen this in bonds and stocks multiple times over the years. In fact, last year’s stock market outperformed the economy. What should have mattered was jobs. Yet the economy could only generate over one million jobs. The Unemployment Rate fell from 10% to 9.4%, but that was primarily due to the Bureau of Labor Statistic’s lowering of the available labor pool by roughly 2 million people. Effectively, by lowering the pool by 2 million, the BLS is saying is that not only did 2 million people check out of the work force, but so did an additional 1.2 million that should have been added to the work force due to demographics. That’s over 3 million people who should be have been counted as unemployed but weren’t.
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