- SEC narrowing its investigation into Lehman on its questionable accounting practices makes sense. “Lehman has long looked to be the poster child of likely accounting fraud,” Yves Smith writes at naked capitalism. But she notes that while Lehman looks like a “textbook case of excessively creative accounting…I would not hold my breath about obtaining criminal indictments.”
- Reflecting push for ever-shorter trading horizons, CBOE has asked regulators permission to list options expiring daily. Contracts’ lifetimes would be between one and four days. Move follows growing interest trading options that expire weekly. “I guess the question isn’t why, but why not?” asks Adam Warner at Daily Options Report.
- “Growth is slowing when it should be surging,” at this point, former labor secretary Robert Reich complains on his blog. “We may or may not fall into another hole, but a so-called ‘double dip’ isn’t really the worry,” he says. “The worry is we’re not getting out of the giant hole we fell into.”
- Adobe (ADBE) wastes little time celebrating Apple’s (AAPL) move to loosen the reins over its software developer rules.
- Nokia (NOK) replacing its CEO is a long time coming, but Digital Daily blogger John Paczkowski questions timing of the move. It comes ahead of Nokia World and the company’s major product launch. That means new CEO Stephen Elop isn’t starting off with a clean slate, “but a full one overflowing with a new software platform and a new smartphone portfolio.”
- Reuters blogger Felix Salmon is concerned that the average American remains pretty pessimistic about the US economy, and these viewpoints could manifest as self-fulfilling prophecies. “It would be nice to see the bulls out there come up with some good explanation of how their forecasts are consistent with these survey results,” Salmon says. “Because on the strength of these answers, the double dip is coming.”
- But contrary to Salmon’s belief, Business Insider’s Vincent Fernando says when everyone’s sour on the economy, it’s actually in better shape than many think. “When most people are reported as being extremely negative, your contrarian alarms should be going off as an investor.”
- Our colleague Kristina Peterson hits a home run in today’s C1 story on the Briargate traders who trade at the market’s open and close and chill out for the rest of the day. What a life.
- St. Louis Fed President James Bullard says the central bank has moved closer to providing additional support to the economy, although he added he doesn’t expect that action to become necessary.
- With tomorrow marking the ninth anniversary of 9-11, take a few minutes to read Todd Harrison’s reflection of the horrific day. A well-written and extremely moving piece.
Stocks running strong this month, not looking back.
US stocks rise Friday and close the week with minimal gains as investors cautiously grew more confident about the economy’s recovery prospects.
DJIA finishes up 48, or 0.5%, to 10463 and closes the week up 0.1%. The blue-chip index has risen seven of the last eight sessions and is up 4.5% in
September.
Perhaps more important, the Dow finally closes above its 200-day moving average. Newswires columnist Tomi Kilgore, who commented earlier this week on the index’s struggle to get past this level, offers his latest take:
The fifth time was the charm for the DJIA, which closed above the 200-day moving average (10450) for the first time since Aug. 10. The persistence bulls showed was impressive. DJIA had tested the 200-day in intraday trading the previous four sessions, but had failed to close above it, so it wouldn’t have been a surprise to see a pullback. DJIA closed up 48 at 10463. The next resistance area is the early-August congestion range of 10600-10720. Support is at 10315-10335, which includes a few intraday lows from the past week and the 50-day moving average.
Furthermore, the S&P 500 rises 5, or 0.5%, to 1110. The index finishes the week up 0.5% and has gained 5.7% this month. Nasdaq Composite adds 6, or 0.3%, to 2242.
Once again volume was light; just over 3.1B shares traded in NYSE composite volume. Obama calls recovery “painfully slow,” and PG&E loses nearly $1.2B in market cap after California pipeline fire.
The holiday-shortened week didn’t offer much economic news. But the calendar picks up next week as new reports on the factory and retail growth highlight the week’s action.
So which one of you beauties will be first to "restructure"?
“As the summer draws to a close, it is becoming increasingly clear that neither the European sovereign debt crisis nor the banking sector crisis has been resolved,” Morgan Stanley economist Joachim Fels writes.
So far, it seems the euro and the single currency’s frequent escort, US stocks, haven’t received that memo yet. They show no signs of the turbulence ignited by the last flare-up in May. But that probably won’t last.
“The sovereign and banking crises continue to mutually reinforce each other because governments need to backstop banks, while banks own large amounts of peripheral government bonds,” Fels writes. “So, not much has changed since we last described (in June) this vicious circle, called for a circuit-breaker, and concluded that the obstacles to a real solution of the banking and sovereign crisis were formidable,” he says.
It’s funny how things work out some times. A few minutes after publishing today’s post on what’s driving the market, and the possibility it’s at least partially the Fed, I got a late invitation to join an on-the-record meeting here in the office with St. Louis Fed President James Bullard. This was my chance to ask him, directly, is the Fed propping up the stock market?
Bullard is a top Fed official, a voting member of the Federal Open Markets Committee. He’s as good a person to ask as anybody, right?
It was a broad-based conversation, with Bullard and more than a dozen Newswires and Journal reporters and editors. Here’s Michael Derby write-up of the meeting. A range of topics were discussed, from the Fed’s communication issues to the efficacy of quantitative easing. Myself and the Journal’s Thorold Barker peppered him with questions about the Fed’s bond buying programs and asset prices.
Essentially, he said the Fed isn’t trying to shore up assets, and isn’t keeping an eye on the stock market either. Trying to influence the stock market is a “losing game,” he said. The pay scant attention to it, he said. “I don’t think we try to worry too much about particular stock market movements over any short length of time,” he said, especially given how volatile it is.
But, in response to one of Barker’s questions about whether the Fed’s monetary policy has as one of its aims shoring up riskier assets, he did allows as to that some money is probably finding its way into assets, but “I don’t think it’s a direct intent at all.” Barker also said that some of his contacts within the Fed had told him that last year’s bond-buying scheme had as one of its goals reflating risk assets.
So, there you go, pretty much from the horse’s mouth, as they say. My impression was that he thinks most of the money was being tied up in excess reserves, and if and when the economy improves it will find its way back through the banks into consumers’ hands in the form of loans and such.
For investors, this month has been anything but a typical September.
This month kicked off with the usual banter that September is historically the worst month for market. But ten days later the market hasn’t followed any of September’s historic patterns. Stocks keep drifting higher and, as a result, the bulls are starting to show fresh signs of life.
The S&P 500’s 5.2% rise in the first six trading days of the month is the best six-day start to September since 1939, Bespoke reports. Bullish sentiment among individual investors has soared throughout the last two weeks and most recently reached its highest level since April, according to AAII’s sentiment survey.
“Talk about a schizophrenic market,” Pragmatic Capitalism says. “Just two weeks ago the sky was falling…Now, just a few economic reports and a brief rally later, small investors are convinced that there are no risks coming down the pike.”
But the rallying stock market and soaring investor sentiment begs the question: What exactly has changed in the last few weeks?
Sure, we’ve had a run of not-exactly-horrible economic data over that time frame. But the better-than-expected ISM manufacturing report and jobs data, which garnered the most attention last week, weren’t exactly excellent reports. Lets not kid ourselves, data improving from awful to less awful shouldn’t be a reason to believe the economy’s back and the recovery’s ready to roar.
Couple of other things to consider as this rally keeps puttering along: this recent run-up has all been on low volume, which tends to skew results and lack conviction in either direction. As Pragmatic Capitalism notes, the last time bullish sentiment was this high was mid-April, just days before the 1Q market peak.
We’ll end with UBS’ Art Cashin’s wise conclusion to his morning note: “Thin markets are very tricky. Stay very nimble.”
Stocks are flat on the week, and flat on the year, and it’s hard to see what the equities market is telling us. But the so-called “safe haven” trades are starting to chirp (although, of course, that’s liable to change at a moment’s notice.)
We also explore Kristina Peterson’s WSJ story on Briargate Trading. You think you’d like to work two hours a day? These guys do.
The stock market has been recording pretty strong gains so far in September, all the more notable since September is historically such a lousy month. The proverbial double-dip fears are receding – on the Street, at least (if you’re on that other street, Main Street, it doesn’t matter whether or not it’s called a double-dip. It’s lousy and it’s been lousy.)
Okay, so what’s doing it, right? That’s the question. Have the economic tea leaves shifted that significantly? We could write a 1,000-word post deconstructing the various data points, the ISM, the August jobs report, the weekly jobless claims, the housing numbers, the GDP report. But there’s not much point. We’ve been over that ground before. I think losing 54,000 jobs overall in August – the third consecutive losing month – is more significant than the 67,000 private sector jobs that were added. You agree or you don’t.
But make no mistake, the Street has seized on the “better-than-expected” data points to help it climb from the bottom of the trading range it was about to break through in August. But the numbers haven’t been good enough to take the market above the trading range, either (and we’re broadly calling this range between 1040 and 1130 on the S&P 500.)
Then there’s this notion floating around that the Republicans are definitely going to take back either one or both chambers of Congress in the mid-terms, and since the GOP is perceived as more business-friendly, that’s good for business and the stock market. That is definitely a second cause.
But, once again, we have to wonder if it’s the Fed again, trying to goose the wealth effect.
Bigger-than-expected declines in initial weekly jobless claims and July trade deficit carry stocks for a while today, with Dow Industrials threatening early to reach into triple digits on the upside.
It continues to be what Art Cashin calls a “low-volume levitation,” which nearly succumbed to evaporation as bulls showed signs of afternoon fatigue. US stocks manage modest gains, but still unable to produce an upside breakout to really demoralize bears.
Materials sector ends as the only one in the red; financials, health-care and telecom lead, but conviction still seems MIA. DJIA rises 28.23 to 10415.24, and Nasdaq Comp adds 7.33 to 2236.20. S&P 500 ends 5.31 higher at 1104.18.
Look for more aimless, wandering action tomorrow (stalking the euro), as the only notable data release is July wholesale trade and inventories.
Trade deficit numbers looked much better than everybody expected, and that may mean at least that imports won’t drag on 3Q GDP the way they dragged down 2Q economic growth.
Fed tries to put its best foot forward in the latest Beige Book report, noting “continued growth in national economic activity,” while still acknowledging “widespread signs of a deceleration” compared to preceding periods. It’s a forty-three page report, so in an attempt to cut to the chase and distill the key message, we took an admittedly unscientific but hopefully insightful shortcut.
We counted how many times the report mentioned the word “weak” or other derivation (weakness, weaker, weakening, etc), and compared it to other recent BB reports.
In this latest report, the bank used “weak” or other derivative 65 times. That compares to 53 times in the July report and 45 in June. Obviously an uptick in “weakness,” but down from 84 mentions in March, and 94 in July of last year. On the precipice of recession in November 2007, the Beige Book mentioned weak etc 61 times.
Conversely, the Fed mentioned the word “improve” or some other derivation 54 times in today’s report. That’s down from 68 in July and way down from 107 mentions in June.
It’s no deep-dive into the nitty gritty, folks, but seems suggestive of the economy’s direction, at least.
Also interesting to note, the Fed increased its use of the adverb “quite” for added emphasis to some of its observations, as follows:
Demand for commercial real estate remained quite weak but showed signs of stabilization in
some areas.
Upward price pressures remained quite limited for most categories of final goods and services, despite higher prices for selected commodities such as grains and some industrial materials.
Most Districts reported little or no change from existing low levels of commercial and industrial lending, as businesses remained quite cautious about expansion plans.
A recent flurry of refinancing activity spurred increased demand for residential mortgages in the New York, Cleveland, Chicago, and Kansas City Districts, but new-purchase mortgage originations remained quite sluggish in general.
With builders holding off on new construction, inventories have gotten quite low,
though prices still seem to be drifting lower.
The recent Bank for International Settlements FX market survey unvelied a number of trends. One that didn’t get much coverage was some of the reordering of the top ten trading centers around the world. Not huge shifts but interesting nonetheless. For example, Switzerland – home of two of the largest FX trading banks in UBS [...] […]
