Daily Insight: Jobless Claims, Manufacturing, IP, and Housing

U.S. stocks gained a little more ground Thursday, extending the winning streak to six sessions, as strong regional manufacturing reports and an upbeat earnings pre-announcement from UPS offset troubling jobless claims figures, the rolling concern over European sovereign debt, and the lowest UK consumer confidence reading since July 2008 that had pre-market trading lower.

The numbers out of the manufacturing sector are really very good, but that’s about all we’ve got right now. If we’re going to pass this ball off from government stimulus to something that can achieve just mild economic growth without all of this support then we’re going to need big employment gains.

The UPS report was a good one, at least in relative terms as we’re coming out of two years of depressed package volume, but it showed domestic activity remained weak. Package volumes rose 24% within countries outside of the U.S., and make no mistake this is driven by China’s huge stimulus efforts, but U.S. shipments rose less than 1%.

Just three of the top ten industry groups closed higher on the session, led by industrials shares. Information technology and consumer discretionary shares were the other two winners. Financials led the seven industry groups that fell, health-care yet again was near the bottom of the list as it held the penultimate spot. Regulation that will cap health insurer profits have obviously led to investor unease.

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Brent Vondera, Senior Analyst
www.acrinv.com

Daily Insight: Mortgage Apps, Retail Sales, and Thanks to Dr. Zero...For Now

U.S. stocks extended the latest winning streak to five sessions on Wednesday after getting a boost from a strong retail sales report and positive comments from JP Morgan’s Chairman/CEO. Oh, and a stocks received little more help from Dr. Zero as he told lawmakers that the recovery faces “significant restraints” – this pretty much assures no change in the next FOMC meeting’s language with regard to fed funds at virtual zero.

JP Morgan’s CEO Jamie Dimon stated the following: China is growing, India’s growing, Japan is growing, home prices have stopped going down, consumer income is up, consumers are spending, service and manufacturing indexes are up, inventories are still low, I could go on and on.” I guess he could but one’s got to question a few of those points.

Asia is certainly growing, but we’ll see what happens when China reins in their massive government spending and loan activity (and even now it’s mixed as China just printed 12% GDP but Japan pretty much remains in recession); home price activity is precarious at best and existing home prices have engaged in second-round slide that has brought the median price back to the cycle low’ consumer incomes are flat, and that’s only because government transfer payments as a percentage of total income are at record highs, excluding these temporary payments incomes continue to fall. While he’s correct on spending and manufacturing activity, it seems his other assessments are a bit misplaced. But he’s the Chairman/CEO of the second-largest bank by assets and I’m just this guy commenting on the data – I guess we’ll just have to wait and see how things play out.

Financials led the rally, with tech and consumer discretionary rounding out the top spots. Telecoms and health-care (again) were the only two industry groups to decline.
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Brent Vondera, Senior Analyst
www.acrinv.com

Daily Insight: NFIB, Trade, Buyers Show Up But Greece Pays, Intel Inside

U.S. stocks shook off early-session weakness to gain ground for a fourth-straight session on Tuesday. The broad S&P 500 has jumped 15% over the past two months, bouncing off of the late-January pullback of 8%; the market has its eyes set on the pre-Lehman collapse level of 1250 – about 4% above yesterday’s closing price.

This 57-week rally from the 13-year low hit on March 9, 2009 currently stands at 77%, as measured by the S&P 500.

Consumer discretionary, technology and industrial shares led the gainers. Consumer stocks got a lift from the latest trade balance report that showed strong import activity in February; without fear of sounding repetitive, I’m highly skeptical of the idea that consumer activity will improve in a consistent manner – appears to be a minority view, but I’m fine with that.

The four industry groups that closed lower yesterday were energy, utility, basic material and telecoms.

On the EU sovereign-debt financing front, Greece sold $2.12 billion in 6-12 month Treasury bills on Tuesday and demand was super-strong with bid-to-covers at 7.67 for the six-month paper and 6.54 for 12 month – a figure approaching 3.00 is strong. But Greece had to pay up as yields came in at 4.55% and 4.85%, respectively. Dang, U.S. savers would love deposit rates even half these levels – sit tight, we’ll get them in time.

So the EU states that they’ll come to the rescue of Greece if they have trouble funding government debt, which means risk of default over the next 12 months is about zilch. I wonder what Greece would have had to pay without that backstop, 7-8% on 12-month paper? What will they have to pay when this debt needs to be rolled a year from now? Which begs the question: where will EU budget-deficit funding costs rise to when Italy and Spain run into trouble? Germany and France won’t be able to bail them out too, without driving their own borrowing costs higher. This story has only just begun.
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Brent Vondera, Senior Analyst
www.acrinv.com

Daily Insight: Living on a Prayer, Commodity Inflation Watch, Budget Statement

U.S. stocks extended the latest winning streak to three days and the Dow, after facing afternoon rejection during a number of sessions over the past 10 trading days, finally closed above the 11000 mark for the first time in 18 months. This is now the third, I’m going to say secular, run through 11K after initially breaking through in May 1999.

A plan, this time with specifics (although it would take unanimous consent to implement), to bail out Greece from its debt financing problems helped stocks in pre-market trading. The hope that the first-quarter earnings season would post good results helped momentum just enough to hold onto half of the early-session gains – and the current earnings season will be a good one, it’s a couple of quarters out when things may get sketchy, as we’ll get to below.

First-quarter earnings season kicked off last night after the closing bell, but won’t begin in earnest for another week. Within three weeks time we’ll have about 30% of S&P 500 members in and a pretty good idea of how the season will turn out.

The fourth quarter of 2009 ended a nine-quarter string of declining earnings as ex-financial S&P 500 earnings per share rose 13.8%. This quarter the market expects 25%, and we should get that as industrials will finally begin to help out and consumer discretionary will have the easiest comparisons (remember what was occurring a year ago) in a very long time, if not ever. (Earnings results are matched against the year-ago period.)

Six of the major 10 industry groups led the broad market higher. Financials performed the best, with utility and technology shares not far behind. Basic material and health-care led the losers for the third-straight session. Telecom and consumer discretionary shares rounded out the sectors that ended in the red.
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Brent Vondera, Senior Analyst
www.acrinv.com