Insights

Market Strong on ISM Number

The Dow Jones Industrial Average has lost 6.1% over the past two trading weeks and closed out last Friday right on a support level.  Futures were up in the pre-market and a favorable report from the ISM Manufacturing Index (58.4 vs. 55.0 expected) at 10 a.m. powered the market higher as the DJIA climbed 118.20 points (+1.17%, 10,185.53).  Apple Inc. (NSDQ: AAPL) gained $2.67 (+1.38%, $194.73) after a two day slide at the end of last week that sliced $15.82 (7.61%) off its stock price.  It seems that the sellers in the tech space were busy hitting Amazon.com (NSDQ: AMZN), as the recent dust-up with Macmillan brought the sellers out in force.  The largest online retailers stock was down $11.59 at its low but rebounded to close down only $6.54 (-5.21%, $118.87)

The S&P 500 rose 15.32 points (+1.43%, 1,089.19) and the Nasdaq 100 gained 19.68 points (+1.13%, 1,760.72)

Commodities were strong as the dollar sold off.  What we have most likely been seeing over the last couple of weeks is the unwinding of the dollar carry trade.  The very low short term interest rates in the U.S. right now has made shorting the dollar and using those funds to buy stocks and commodities a very popular, and profitable trade since March 9th of 2009. As the dollar strengthened on gradually improving economic conditions domestically, the shorts started to get squeezed, bought their short positions in and then had to sell some stocks.  As the dollar has reached a short term peak and the technical picture points to it selling off for now, these same ‘carry trade cowboys’ may be once again shorting the dollar and buying into the stock market.

New York spot gold ripped higher by $24.60 an ounce (+2.28%, $1,104.80, 4:40 p.m.) as the dollar declined, optimism rose about the global economy and on comments by St. Louis Federal Reserve President James Bullard that deflation was no longer a risk for the U.S. economy.  Eliminating the possibly of deflation makes the probabilities of the economy experience inflation increase, and many economists have said that keeping the current near zero interest rates this low for long could even result in hyper-inflationary conditions in the next few years.  This is not lost on the investing public as all one has to do to see an example of the belief that gold is an inflationary fighting vehicle, is to turn on any financial television station and count the number of advertisements about buying or selling gold you see per hour.

Inflation expectations also increased as President Obama unveiled the 2011 budget with a whopping $1.56 trillion deficit.  Last week Obama was promising a spending freeze in 2011 during his State of the Union speech and this week we have the biggest spending budget in history and a record projected budget deficit.  There oughta be a law!  Actually I think there is one, but they passed another one exempting all the politicians in Washington D.C. from the first one.

Black gold had an even stronger day than yellow gold as Nymex crude gained $1.97 a barrel (+2.70%, $74.86, 4:35 p.m.) on optimism about the world economy, dollar weakness and cold weather in the United States.  The Market Vectors Steel ETF (NYSE: SLX) rose 6.01% (+$3.28, $57.79) after getting sold off for almost 20% over the last three trading days.  Sugar ticked a 29 year high ($30.40) on the Intercontinental Exchange, the iPath Dow Jones-UBS Copper ETF (NYSE: JJC) was up 2.10% (+$0.87, $42.38), the Market vectors Coal ETF (NYSE: KOL) gained 3.22% (+$1.06, $33.91) and the United States Natural Gas Fund (NYSE: UNG) was up 5.26%, (+$0.49, $9.80)

Tomorrow we get the number for Motor Vehicle Sales (8.37 M expected), the ICSC-Goldman Store Sales at 7:45 a.m., the Redbook at 8:55 a.m. and the Pending Home Sales Index at 10 a.m.  Treasury Secretary Timothy Geithner testifies before the Senate Finance Committee on the fiscal year 2011 budget at 10 a.m. and at the same time Paul Volcker testifies on regulations to limit high-risk bank activities before the Senate Banking Committee.

Selected earnings estimates for Tuesday, February 2, 2010:

A quick scan will show you that we have a decent number of oil companies that are all reporting tomorrow – BP, MRO, SU, TSO and TDW.

ACE 1.93 after the close, AFL 1.15 atc, ADS 1.63, AMB 0.31 before market open, AXE 0.52 bmo, ADM 0.72 bmo, ADP 0.58 bmo, BEAV 0.31 bmo, BP 1.51 bmo, CMI 0.76, DHI -0.14, bmo, EMR 0.42 bmo, ETR 1.55, IRF -0.08 atc, JDSU 0.09 atc, LXK 0.63 bmo, MRO 0.51, MEE 0.27 atc, MET 0.95 atc, NWS atc, PBG 0.43 bmo, PRGO 0.66 bmo, SU 0.36 bmo, TSO -0.92 atc, DOW 0.11, HSY 0.60 bmo, SMG -0.83 bmo, TNB 0.63 bmo, TDW 1.20 bmo, UPS 0.74 bmo, UNM 0.64 atc, VRSN 0.34 atc, WHR 1.32 bmo.