Daily Insight: The Cost of Entitlement

U.S. stocks rallied shortly after the open and held the gains to the close. A rebound in commodity prices, helped by a lower dollar, overshadowed concerns that higher interest rates (India’s monetary tightening) and rising public-sector debt will derail the global recovery.

The rolling concern over European sovereign debt issues that was eminent in pre-market trading didn’t last long. To be specific, the worries lasted exactly 30 minutes into the regular trading session as that’s how long it took for stocks to rebound into positive territory – and for the dollar to give up its early-session rally and turn lower. As we’ve been talking about, the only thing the greenback has going for it right now is fear.

Consumer discretionary, basic material and tech shares led the way. Energy and utility stocks were the only losers out of the major 10 sectors. The price of crude reversed an earlier decline, but the shares didn’t follow suit.

It is interesting to watch consumer discretionary shares rally with oil over $80, pump prices inching closer to $3 (national avg. at $2.82), 10% unemployment and high household debt levels. The index that tracks these shares has doubled over the past year and is just 18% below the all-time high hit in 2007 (for perspective the broad market remains 25% below its peak). Something doesn’t exactly seem rational with this picture, if you ask me. Either job growth is going to come back with a vengeance and justify this move, or…well you know where I’m going with this.
Click here to read the rest of this entry.

Brent Vondera, Senior Analyst