Market Talk

Abbondanza!

US stocks close out their best July in years with a quiet session, after initial reading on 2Q GDP comes in showing a narrower than expected contraction.

DJIA rises 16 to 9171, up about 8.6% on the month; it’s the Dow’s best July since 1989 and its best month since 2002. S&P 500 gains less than 1 to 987, up 7.4% in July and capping off its best five-month spurt since 1938. Nasdaq Comp down 6 to 1979. (Video recap here.)

This three-week rally has been impressive, but has been bolstered by low-ball earnings estimates that were easy to hurdle. If the market’s going to continue its run, it’s going to have to do the tough work now.

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Get up mule, we got inventory to restock.

We hear there’s a big inventory restocking coming, and that will help end this dog-gone recession, economists say, with almost complete uniformity.

After all, there’s been massive drawdowns in inventories and businesses must restock, we’re told. Perhaps that’s so, but inventories need to be shipped, and from what we’ve heard from freight haulers lately, things are pretty quiet and expected to stay that way.

Yesterday, YRC Worldwide (YRCW) — among the nation’s largest trucking companies — said freight-hauling tonnage in its national network was down 39% vs a year ago. Now, some analysts say YRCW’s problems stem from more than just a bad economy, and peers are doing better, which may be true. JB Hunt (JBHT), for instance, didn’t log volume declines nearly as sharp as YRCW. Continue reading…

Historically speaking, some day I might be able to afford meat again.

After yesterday’s weekly jobless claims, we again heard the saw that once claims peak, the recession’s end is near. It’s one of those historical lessons people latch onto, no matter whether or not it fits the current pattern. And we’re not so sure just how well it does fit the current pattern.

Conventional wisdom holds that once weekly jobless claims peak, the recession’s end is near. But conventional wisdom hasn’t done so well this business cycle.

“To be sure, when jobless claims roll over from their peak, the end of the recession is never very far behind,” Gluskin Sheff’s David Rosenberg writes. “We can buy that. But this was no normal recession, nor will it be a normal recovery.”

Claims are down about 13% from their March peak, he notes. But typically they are down 20% by now, and 30% “is not uncommon.” At this rate, it will be another 4-5 months before claims break decisively below the 500,000 threshold, he says.

That, he adds, is “the point at which we should start to see employment stabilize or perhaps even begin to expand (though not likely enough to prevent the unemployment rate from making new highs.)”

No, no, it's very lovely, I'm just, you know, broke.

So 2Q GDP came in not quite as bad as the Street expected, still showing an economy in recession, but on the surface giving some hope to the bulls – and everybody who cares about such things, really – that the economy’s tailspin may be at least leveling off. And after that leveling off period, inevitably, a recovery must come.

We’d like to believe that, really we would.

GDP contracted 1% in the quarter, less than the 1.5% that was widely expected, and far less than the 6.4% in the 1Q (that number was revised from 5.5%; and the 4Q08 number was revised to 5.4% from 6.3%; seems like just a flip-flop of the numbers, really, but you could argue it shows the worst of the recession hit in the 1Q and not the 4Q, for whatever that’s worth.)

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Premarket US stock futures suggested bulls were antsy to build on yesterday’s gains, and close out a strong July with an exclamation point. But in what looks like a classic buy on the rumor, sell on the news move, futures fell sharply after this morning’s GDP report showed a slightly narrower contraction than expected.

S&P futures were up about 5.50 before the data hit; lately they’re down 2.30; DJ futures down 6. Ten-year higher, yield at 3.59%.

Still, Dow Industrials are up more than 8% for the month, S&P 500 up more than 7%, and best July for the broader market since 1997.

Second-quarter GDP contracted at a 1% annual rate, narrower than the 1.5% that was expected, and far narrower than the 1Q’s 5.5%. But the BEA also released its annual benchmark revisions, which showed that from the 4Q07 to the 4Q08,  the economy contracted at a 1.9% rate, as opposed to earlier estimates of a 0.8% rate.

Next week’s packed with closely watched data, including ISM, personal income & spending, pending home sales, factory orders, auto sales, chain-store sales and finally the July employment report. Rest up this weekend.

US stocks rally early, putting the S&P 500 within spitting distance of the 1000 level, a place it hasn’t seen on a regular basis since after the Lehman blowup. But a late fade tempers the gains. (Video recap here.)

DJIA rises 84 (0.9%) to 9154, briefly visiting the 9200 level. S&P 500 gains 12 (1.2%) to 987, coming within a few points of 1000. Nasdaq Comp rises 17 (0.8%) to 1984. Big Board volume’s heavy.

Hard to pin the rally on a fundamental driver. Weekly jobless claims didn’t rise as much as expected, but still are moving back toward the 600,000 level. Exxon’s earnings were a bomb, although in this case, bomb is an extremely relative term: the company’s $3.95B in profits is almost certainly more than any other company in America will earn in the 2Q.

When that’s the case, it’s usually because there isn’t a fundamental reason to be had, and it’s technical trading being driven by the pros.

The late fade was a bout of old fashioned profit taking, as investors got nervous about tomorrow morning’s GDP report, Kent Engelke, chief economic strategist at Capitol Securities Management, says. Investors are on edge and there’s a lack of conviction, he adds. DJIA closes up 84 at 9154; but had been up as much as 176 at 9246, its highest level since November.

(Donna Kardos Yesalavich contributed to this post.)

Is this how we'll remember Hank Paulson?

Rochdale Research’s Dick Bove has had just about enough of all this Goldman Sachs bashing lately.

In a fairly exhaustive note today, Bove spills a lot of ink in defense of Goldman, doing a point-by-point rebuttal of some the more salacious charges against the firm (whether it had a hand in the demise of its competitors, traded with taxpayer money, front-ran, juiced commodities markets, traded against its own customer advice), and notes that investors need to consider “a political risk” for GS shares, which could have near-term impact on the stock.

All his arguments seem lucid, except the one where he tries to justify the influence of former Goldman Sachs heavyweights within the US government. Continue reading…

Wall Street's refueling ship arrives.

We continue to be impressed by the volume of ink dedicated to the notion that the economy is on the mend. Seems like every data point, every report, every corporate profit (or loss) report is being interpreted as a sign, a signal that the abyss has been skirted, and good times must be right around the corner.

Yesterday’s Beige Book was another in the string. “Reports from the 12 Federal Reserve Districts suggest that economic activity continued to be weak going into the summer,” the Fed reported, “but most districts indicated that the pace of decline has moderated since the last report or that activity has begun to stabilize, albeit at a low level.”

That “most,” as our colleague Jim Murphy pointed out, turned out to be broadly defined. “Economies of six of the 12 Fed districts showed an improvement or stabilization from the previous Beige Book, and five districts reported that activity was ’slow, subdued or weak.’ ”

That’s an improvement from June’s report, when only five showed signs of moderation, much less stabilization. Six is certainly better than five, but forgive us if we haven’t put the champagne on ice quite yet.

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US stocks displaying the firmest premarket tone we’ve seen so far this week, based on indications from the futures market. S&P futures up 8.90, DJ futures up 68. Ten-year lower, yield at 3.70%. Crude futures up about $1.

Goldman Sachs’ upgrade on GE to buy from neutral has the stock up more than 4% premarket, and helps feed the morning’s positive vibe, but Goldman’s main reason for the upgrade – less chance GE will have to separate out GE Capital – doesn’t strike us as a real grabber.

Exxon Mobil’s 2Q earnings plunged – plunged we tell you. But don’t worry about them too much. The company cleared $3.95B, down from last year’s $11.68B, on falling crude prices and well as sagging demand. Still, if your pain through the worst downturn in a generation is that you made only $4B in three months, you’re managing well enough, we’d say.

Disney reports after the closing bell.

Weekly jobless claims rose by 25,000 to 584,000, less than the 34,000 Wall Street expected. Also, the continuing claims numbers fell again, by 54,000 to 6.2M. But, with six people out there applying for every job opening, we wonder how many of those who fell off the unemployment rolls were the one lucky one who found a job, and how many were among the five who didn’t.

Treasury auctions $28B in seven-year notes at 1:00 p.m. ET, the last of three massive sales this week.