U.S. stocks posted another very good session yesterday, as the rally from the wicked low of 666 continues. News that FASB voted to modify the accounting rule that has done undue damage to regulatory capital within the banking system offset a jobless claims figure that shows no sign of improvement within the labor market.
Yesterday the Financial Accounting Standards Board (FASB) approved changes to fair-value (mark-to-market) accounting that will allow financial firms to use “significant” judgment in valuing assets to reduce write downs on certain investments – namely those in which there is not sufficient liquidity to make a market.
The key here is that “relaxing” the rule at least partially breaks the link between these assets and regulatory capital and this will help to ease the impact the November 2007 accounting change has had on banks’ ability and willingness to lend (it has unjustifiably been vaporizing capital). This will also allow firms to mark an asset to the underlying cash flows instead of having to price to distressed levels even for securities that are performing on schedule.
This likely helped yesterday’s rally, although we should acknowledge that the bounce off of the March 9 low is at least partially a result of the market pricing this event in as it’s been telegraphed for a couple of weeks now.
It was really nice to see something other than the financial sector lead the overall rally for a second-straight day now. This could be a sign a broader-based leadership is occurring. Transportation stocks are on a tear as well, which is essential to see if we’re going to add onto this upswing – the Dow Jones Transportation Average jumped 7.9% yesterday and is up 38% from its March 9 low.
To throw a guess out there, I think we can add another 10% or so to this rally, which will put the broad index at 20 times our low-end earnings range estimate. Beyond that it’s going to be tough to keep going as there are still tough job numbers to get past, a first-quarter earnings season that will be ugly (banks will show improvement but industrial, tech and consumer sector profits will be weak), legislative risks and rogue regime activity that no one is really talking about right now.
A really good session could have been a great session yesterday, but we lost some momentum in the afternoon and failed to hold above 842 on the S&P 500, which may be a level technicians are viewing as resistance -- that was the October 10 intraday low. October 10 marked the first true low put in during this six-month stock-market debacle; then we had the penultimate low hit on November 20 and the latest devilish low of March 6.
Market Activity for April 2, 2009
G-5, G-7, G-8, G-20, G… whatever
I’m not going to waste much time on the G-20 show-- and the fact that it involves so many members should alert people to the high probability that its ideas are going no where. Heck, the G-8 (formerly the G-7, and before that the G-5) hadn’t agreed on anything since the Plaza Accord of 1985 – and a good thing too as the agenda from these groups are as anti-American as those of the UN.
The farce of this latest gathering (not to be confused with the farce of all of those rock-wielding miscreants outside the event pretending to be anti-capitalists, the majority of which cannot even define the term, but are actually nothing more than delinquents who never miss an opportunity to spur chaos) is that they are leaning on the IMF to spark an economic revival.
The IMF, as its 65-year history proves, is not capable of profound economic incitement, but unfortunately they are quite adept at transferring wealth from the American taxpayer to all kinds of indecorous regimes. But fear not, as the addition of another 12 members (and thus 12 more competing self interests) to the G means it’s highly unlikely even a fraction of their agenda will be accomplished.
(The hilarious aspect of the convocation – well hilarious if it we weren’t talking about so much money and this wasn’t the fraction of the G-20 agenda that will be accomplished – is that the group agreed to add $1 trillion to the IMF. Where do people think this money comes from? It’s sapped directly from the private sector; so someone please tell me how this boosts anything. The Keynesians in charge incessantly focus on their precious “aggregate demand” but how exactly is aggregate demand boosted when you take $1trillion from the private sector and hand it to the IMF to distribute as they wish. Reality is it doesn’t boost anything, but rather does damage as the IMF can hardly allocate these resources in the efficient manner the market is capable of.)
Jobless Claims
The Labor Department reported initial jobless claims for the week ended March 28 jumped to the highest level since September 1982 and sits just 25,000 below the all-time high. (Still, when you adjust for employment growth -- there were 88 million payroll positions in 1982 vs. 132 million today -- claims would have to be higher by 300,000 than they are currently to compare to the labor market conditions in the early 1980s).
Initial claims rose to 669,000 from 657,000 in the prior week (that prior week’s reading was revised higher by 5,000). The four-week average of claims rose 6,500 to 656,750.
Continuing claims hit the highest level since records began in 1967, rising 161,000 to 5.728 million.
The insured unemployment rate (which tracks the direction of the overall jobless rate) rose to 4.3% from 4.2% in the prior week. This insured unemployment rates has hit the highest level since May 1983, when the overall jobless rate hit 10.1%.
This data continues to signal the job market will continue to worsen. We’ll note, the unemployment rate is a lagging indicator – it will continue to rise and will peak even as the business cycle returns to expansion mode. But this claims data is what is known as a coincident indicator, meaning it’s a real-time look at economic conditions. This figure has to show some easing, along with ISM hitting at least the low 40s (currently at 36), before signaling the economy is truly rebounding.
Factory Orders
The Commerce Department reported that factory orders rose for the first time in seven months, mirroring the direction the durable goods report showed roughly a week ago – factory orders also include non-durable goods orders, or those goods that are not necessarily meant to last at least three years.
Orders rose 1.8% in February after falling 3.5% for January, which was revised down from the 1.9% decline estimate when the January report was first released.
The damage witnessed in factory orders over the past six months has been harsh, falling 33% at an annual rate since September (that’s with this latest increase). This latest reading showed nice increases in construction materials, machinery, and computer and electronics orders. The key figure we watch is nondefense capital goods ex-aircraft (a proxy for business-equipment spending). This segment of the report jumped 7.1% for February after plunging 46% at an annual rate in the previous six months.
Now let’s add to this rebound and we may be onto something.
Big news today is the release of the March jobs report. We’ll likely see a decline of 700,000 payroll positions, the consensus estimate is for a 670,000 decline. The market should be able to look past this reading though as it has already factored it in. It may take a decline that approaches 750,000 to drive a substantial sell-off in stocks.
We’ll also get the ISM services-sector reading which has moved slightly above the low put in in November – although the February reading did decline relative to the January number so the improvement hasn’t been consistent. If this reading inches higher, and the jobs loss stays within expectations, stocks may just rally again.
Have a great weekend!
Brent Vondera, Senior Analyst
Yesterday the Financial Accounting Standards Board (FASB) approved changes to fair-value (mark-to-market) accounting that will allow financial firms to use “significant” judgment in valuing assets to reduce write downs on certain investments – namely those in which there is not sufficient liquidity to make a market.
The key here is that “relaxing” the rule at least partially breaks the link between these assets and regulatory capital and this will help to ease the impact the November 2007 accounting change has had on banks’ ability and willingness to lend (it has unjustifiably been vaporizing capital). This will also allow firms to mark an asset to the underlying cash flows instead of having to price to distressed levels even for securities that are performing on schedule.
This likely helped yesterday’s rally, although we should acknowledge that the bounce off of the March 9 low is at least partially a result of the market pricing this event in as it’s been telegraphed for a couple of weeks now.
It was really nice to see something other than the financial sector lead the overall rally for a second-straight day now. This could be a sign a broader-based leadership is occurring. Transportation stocks are on a tear as well, which is essential to see if we’re going to add onto this upswing – the Dow Jones Transportation Average jumped 7.9% yesterday and is up 38% from its March 9 low.
To throw a guess out there, I think we can add another 10% or so to this rally, which will put the broad index at 20 times our low-end earnings range estimate. Beyond that it’s going to be tough to keep going as there are still tough job numbers to get past, a first-quarter earnings season that will be ugly (banks will show improvement but industrial, tech and consumer sector profits will be weak), legislative risks and rogue regime activity that no one is really talking about right now.
A really good session could have been a great session yesterday, but we lost some momentum in the afternoon and failed to hold above 842 on the S&P 500, which may be a level technicians are viewing as resistance -- that was the October 10 intraday low. October 10 marked the first true low put in during this six-month stock-market debacle; then we had the penultimate low hit on November 20 and the latest devilish low of March 6.
Market Activity for April 2, 2009
G-5, G-7, G-8, G-20, G… whatever
I’m not going to waste much time on the G-20 show-- and the fact that it involves so many members should alert people to the high probability that its ideas are going no where. Heck, the G-8 (formerly the G-7, and before that the G-5) hadn’t agreed on anything since the Plaza Accord of 1985 – and a good thing too as the agenda from these groups are as anti-American as those of the UN.
The farce of this latest gathering (not to be confused with the farce of all of those rock-wielding miscreants outside the event pretending to be anti-capitalists, the majority of which cannot even define the term, but are actually nothing more than delinquents who never miss an opportunity to spur chaos) is that they are leaning on the IMF to spark an economic revival.
The IMF, as its 65-year history proves, is not capable of profound economic incitement, but unfortunately they are quite adept at transferring wealth from the American taxpayer to all kinds of indecorous regimes. But fear not, as the addition of another 12 members (and thus 12 more competing self interests) to the G means it’s highly unlikely even a fraction of their agenda will be accomplished.
(The hilarious aspect of the convocation – well hilarious if it we weren’t talking about so much money and this wasn’t the fraction of the G-20 agenda that will be accomplished – is that the group agreed to add $1 trillion to the IMF. Where do people think this money comes from? It’s sapped directly from the private sector; so someone please tell me how this boosts anything. The Keynesians in charge incessantly focus on their precious “aggregate demand” but how exactly is aggregate demand boosted when you take $1trillion from the private sector and hand it to the IMF to distribute as they wish. Reality is it doesn’t boost anything, but rather does damage as the IMF can hardly allocate these resources in the efficient manner the market is capable of.)
Jobless Claims
The Labor Department reported initial jobless claims for the week ended March 28 jumped to the highest level since September 1982 and sits just 25,000 below the all-time high. (Still, when you adjust for employment growth -- there were 88 million payroll positions in 1982 vs. 132 million today -- claims would have to be higher by 300,000 than they are currently to compare to the labor market conditions in the early 1980s).
Initial claims rose to 669,000 from 657,000 in the prior week (that prior week’s reading was revised higher by 5,000). The four-week average of claims rose 6,500 to 656,750.
Continuing claims hit the highest level since records began in 1967, rising 161,000 to 5.728 million.
The insured unemployment rate (which tracks the direction of the overall jobless rate) rose to 4.3% from 4.2% in the prior week. This insured unemployment rates has hit the highest level since May 1983, when the overall jobless rate hit 10.1%.
This data continues to signal the job market will continue to worsen. We’ll note, the unemployment rate is a lagging indicator – it will continue to rise and will peak even as the business cycle returns to expansion mode. But this claims data is what is known as a coincident indicator, meaning it’s a real-time look at economic conditions. This figure has to show some easing, along with ISM hitting at least the low 40s (currently at 36), before signaling the economy is truly rebounding.
Factory Orders
The Commerce Department reported that factory orders rose for the first time in seven months, mirroring the direction the durable goods report showed roughly a week ago – factory orders also include non-durable goods orders, or those goods that are not necessarily meant to last at least three years.
Orders rose 1.8% in February after falling 3.5% for January, which was revised down from the 1.9% decline estimate when the January report was first released.
The damage witnessed in factory orders over the past six months has been harsh, falling 33% at an annual rate since September (that’s with this latest increase). This latest reading showed nice increases in construction materials, machinery, and computer and electronics orders. The key figure we watch is nondefense capital goods ex-aircraft (a proxy for business-equipment spending). This segment of the report jumped 7.1% for February after plunging 46% at an annual rate in the previous six months.
Now let’s add to this rebound and we may be onto something.
Big news today is the release of the March jobs report. We’ll likely see a decline of 700,000 payroll positions, the consensus estimate is for a 670,000 decline. The market should be able to look past this reading though as it has already factored it in. It may take a decline that approaches 750,000 to drive a substantial sell-off in stocks.
We’ll also get the ISM services-sector reading which has moved slightly above the low put in in November – although the February reading did decline relative to the January number so the improvement hasn’t been consistent. If this reading inches higher, and the jobs loss stays within expectations, stocks may just rally again.
Have a great weekend!
Brent Vondera, Senior Analyst
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