4:20 pm : With the Dow hitting record after record, it wasn't surprising Thursday to see the bulls take a bit of a breather. A late-day resurgence in buying activity did briefly lift the blue-chip indices into the green, with the Dow surpassing 13,500 for the first time ever. However, sellers eventually got the last laugh as their efforts, albeit unimpressive, were just enough to take some froth out of a market that looks ripe for an even more convincing pullback with long-term optimism still overpowering the fundamentals.
Among the main catalysts arming the bears with enough to stall the underlying bullish momentum that has vaulted stocks virtually uncontested for several weeks were mixed economic data and soaring oil prices. Before the bell, initial claims unexpectedly fell 5K to 293K. That was the lowest level since mid January and consistent with tight labor conditions. However, with high levels of resource utilization still a main concern among policy makers, the data actually removed some of the optimism toward the Fed easing later in the year.
At 12:00 ET, the Philadelphia Fed index checked in at a four-month high. While the May reading of 4.2 didn't translate to a strong growth path, it did signal a slight improvement after three consecutive sub 1 readings. Nonetheless, with the market now viewing improvements in economic growth to imply the Fed will merely remain on hold, the data also sidelined overly optimistic rate-cut scenarios.
Fed Chairman Bernanke also chimed in with some remarks. He said the Fed sees no significant spillovers from the subprime market to the rest of the economy or to the financial system; but he also noted that subprime lending curbs will restrain housing.
Surging oil prices also acted as a headwind for the bulls. Renewed optimism surrounding the Energy sector's earnings potential given higher energy prices initially gave a sluggish market lacking leadership anywhere else a decent lift. Of the eight sectors trading lower, Utilities and Health Care paced the way lower with modest declines of 0.5% and 0.4%, respectively, while Energy surged 1.3%. When it was all said and done, though, oil's uptick and the commodity's potential to sustain inflation pressures eventually fed into the diminishing likelihood of a Fed easing in the near term. BTK -1.0% DJ30 -10.81 DJTA +0.1% DJUA -0.7% DOT -0.4% NASDAQ -8.04 NQ100 -0.4% R2K -0.6% SOX -1.1% SP400 +0.1% SP500 -1.39 XOI +1.5% NASDAQ Dec/Adv/Vol 1909/1131/1.96 bln NYSE Dec/Adv/Vol 2013/1279/1.40 bln
3:30 pm : The indices continue to trade in split fashion, but the Dow and S&P 500 are still attracting enough late-day buying interest to stay positive even though market breadth remains negative. As reflected in the A/D line, decliners on the NYSE hold an 18-to-13 edge over advancers while those on the Nasdaq hold a 17-to-12 margin. The ratio of up to down volume, however, favors the bulls, which further underscores the significant influence that large-cap names have had on the market's overall performance of late.
One caveat, though, is that below average volume lends little conviction on the part of buyers and their late-day heroics. Such limited participation leaves the door wide open for sellers to challenge today's attempts to crown the Dow with its 45th record close since October. The NYSE did not see 1.0 bln shares trade until 30 minutes ago. DJ30 +19.18 NASDAQ -1.31 SP500 +2.20 NASDAQ Dec/Adv/Vol 1766/1237/1.56 bln NYSE Dec/Adv/Vol 1871/1359/1.1 bln
3:00 pm : Stocks continue to forge ahead, as buyers bully sellers into covering their shorts yet again. The Dow is hitting not just another record but a new milestone, eclipsing the 13,500 level for the first time ever. IBM (IBM 105.84 -0.03) spiking nearly 1.0% over the last hour has been the most noticeable reason behind the Dow's turnaround. IBM issued a slide show in an 8-K filing providing its long term EPS roadmap, growth initiatives, and saying that it may complete its entire buyback program by the end of the year due to aggressive share repurchases of about 100 mln daily.
Even though blue-chip gains are minimal, a gain is a gain; and the headlines tonight/tomorrow touting another new record for the Dow, should buyers remain in control, will continue to attract investment dollars from the sidelines despite deteriorating fundamentals. DJ30 +14.23 NASDAQ -2.91 SP500 +0.97 NASDAQ Dec/Adv/Vol 1935/1063/1.45 bln NYSE Dec/Adv/Vol 1955/1302/1.01 bln
2:30 pm : The market's continued resilience in the face of rising, now soaring, oil prices is nothing shy of remarkable. Even as crude futures hit their highest levels of the day, up 3.6% near $64.80/bbl heading into the close of trading on the NYMEX, the indices continue to gain strength from the momentum in Energy (+1.5%). In fact, the Dow and S&P 500 have clawed their way back into positive territory.
Strangely, the commodity is still down about 1.4% for the month while the Energy sector is up 4.9%. A big reason behind the market's improvement can be attributed to Dow component Exxon Mobil (XOM 81.98 +0.53), which is also the most heavily-weighted constituent on the S&P 500, hitting fresh historic highs. ..OIX +1.6%. ..OSX +1.5%. ..OIH +1.8%.DJ30 +6.34 NASDAQ -3.46 SP500 +0.28 XOI +1.8% NASDAQ Dec/Adv/Vol 1889/1109/1.34 bln NYSE Dec/Adv/Vol 2008/1234/932 mln
2:00 pm : Not much has changed since the last update as the Nasdaq continues to outpace its blue-chip counterparts to the downside. The most notable areas of weakness, not surprisingly, are in technology. Chip stocks (e.g. AMAT -1.4%, BRCM -1.6%, LLTC -1.6%, MXIM -1.2%) are down for a fourth straight day.
The worst performing component on the PHLX Semiconductor Index, though, is NYSE-listed Micron Technology (MU 11.63 -0.51). The stock is plunging 4.2% after saying it will offer $1.1 bln in convertible notes. While more debt could potentially lower FY07 and FY08 earnings by increasing interest expense, the news does not alter our positive position on the stock. Micron is a suggested holding in the Briefing.com Active Portfolio.DJ30 -29.25 NASDAQ -8.21 SOX -0.9% SP500 -2.60 NASDAQ Dec/Adv/Vol 1934/1061/1.22 bln NYSE Dec/Adv/Vol 1989/1234/844 mln
1:30 pm : Stocks are trying to regain some momentum, but selling remains widespread across most areas and most of the support behind current buying efforts is actually coming from a spike in oil. Fortunately for the bulls, upside leadership in Energy (+1.2%) is acting as somewhat of an offset to oil's inflationary characteristics.
Crude for June delivery is now up 2.7% at $64.24/bbl as refinery outages continue to raise gasoline supply concerns. As a reminder, there are only eight days left until the summer driving season begins. The July contract, which actually has more open interest but won't officially replace the June contract until May 22, is up 2.3% at $65.40/bbl. DJ30 -16.57 NASDAQ -6.35 SP500 -1.36 NASDAQ Dec/Adv/Vol 1981/985/1.14 bln NYSE Dec/Adv/Vol 2078/1135/782 mln
1:00 pm : More of the same for stocks as the bulk of industry leadership remains negative. Nine of 10 sectors are still under pressure, now led by a 0.7% decline in Utilities as further deterioration in Treasuries lifting yields across the curve make dividend paying stocks less attractive.
Rising bond yields are also diminishing the desire to own REITs. Today's worst performing S&P industry groups begin with Retail REITs (-2.3%), followed by Office REITs (-2.2%), Specialty REITs (-1.9%), and Industrial REITs (-1.8%). DJ30 -34.84 NASDAQ -10.23 SP500 -3.40 NASDAQ Dec/Adv/Vol 1941/1011/1.04 bln NYSE Dec/Adv/Vol 2020/1150/704 mln
12:30 pm : Albeit still only posting modest losses, the market has taken a turn for the worse since the last update. At the top of the hour, the Philadelphia Fed index checked in at a four-month high. While the May reading of 4.2 doesn't translate to a strong growth path, any figure above zero indicates expansion in manufacturing activity and is certainly an improvement after the sub 1 readings over the prior three months.
Nonetheless, with the market now viewing any improvements in economic growth to imply the Fed will merely remain on hold and not cut rates anytime soon, the data are acting as another roadblock for the bulls. DJ30 -25.56 NASDAQ -6.41 SP500 -2.09 NASDAQ Dec/Adv/Vol 1867/1063/924 mln NYSE Dec/Adv/Vol 1945/1197/626 mln
12:00 pm : With the Dow closing in record territory for the 23rd time this year, a lack of overwhelming evidence to silence concerns about overbought market conditions has invited some modest profit taking.
For example, valuation concerns have prompted an analyst downgrade on Dow component Caterpillar (CAT 74.52 -1.43). The stock's 1.9% decline accounts for all the Dow's slight downturn. Fellow Dow component Hewlett-Packard (HPQ 44.99 -0.22) posting its strongest revenue growth since 2000 and raising full-year profit forecasts last night has also kept the index in focus; but shares are up more than 3% since Q2 results were inadvertently released last week.
Investors are also dealing with some mixed economic data, with one more report forthcoming (i.e. the 12:00 ET release of the Philly Fed manufacturing index). Before the bell, initial claims unexpectedly fell 5K to 293K, the lowest level since mid January and consistent with tight labor conditions. However, with high levels of resource utilization still a main concern among policy makers, the data have actually removed some of the optimism toward a Fed easing anytime soon. Such overly optimistic rate-cut scenarios have also sparked some consolidation in bonds. The 10-year note is down 7 ticks to yield 4.73%.
The leading indicators index falling for the third time in four months has also given recession-concerned bears more fodder to argue that deteriorating fundamentals leave the market in jeopardy for more downside. From a industry leadership perspective, eight of 10 sectors are trading lower. Energy is the only area attracting notable buying participation; but that is due to a 1.8% surge in oil prices, which is another negative being cited by sellers to take some money off the table.
On a positive note, there is some more M&A news. Alliance Data Systems (ADS 78.44 +15.48) agreed to a $6.4 bln cash takeover by Blackstone Capital Partners, which represents a 30% premium to Wednesday's closing price. Acxiom Corp (ACXM 27.49 +3.82) is being acquired for $3.0 bln in cash, a 14% premium. However, since neither deal is a blockbuster by any means, the bulls are taking a pass. DJ30 -10.43 NASDAQ -5.24 SP500 -1.43 NASDAQ Dec/Adv/Vol 1890/997/794 mln NYSE Dec/Adv/Vol 1940/1164/534 mln
11:30 am : The bulls are still struggling to find their footing amid a lack of market-moving news items to extend yesterday's rally. On a positive note, Hewlett-Packard (HPQ 45.17 -0.04) posted its strongest revenue growth since 2000 and raised full-year profit forecasts last night.
However, shares of the Dow component climbing 1.0% yesterday ahead of the report and soaring 2.8% to multi-year highs on May 8 when Q2 results were inadvertently disclosed in an email has left the stock languishing this morning. As an aside, HPQ said it repurchased 100 mln shares during the quarter, which provides more validation of the numerous buybacks that contributed to making results from the most recent quarter appear much better than they actually were. DJ30 -11.72 NASDAQ -7.80 SP500 -1.92 NASDAQ Dec/Adv/Vol 1843/990/680 mln NYSE Dec/Adv/Vol 1956/1089/440 mln
11:00 am : While the market still exhibits an underlying bid, the bears' overbought argument is garnering some attention, for now. Just like falling oil prices yesterday gave buyers an added incentive to keep a nearly 10-month rally intact, crude more than recouping the 1.0% lost Wednesday is providing sellers with a reason to lock in recent market gains. Crude futures recently hit fresh session highs near $63.60/bbl.
The absence of leadership in Financials and Health Care are currently the biggest overhanging factors; but sector losses are modest at best, further underscoring the lack of conviction on the part of sellers. DJ30 -20.01 NASDAQ -7.06 SP500 -2.83 NASDAQ Dec/Adv/Vol 1914/865/554 mln NYSE Dec/Adv/Vol 1912/1053/346 mln
10:30 am : The indices have bounced off their recent lows but not nearly enough to make a significant chance in the standings. Technology turning the corner has been the biggest reason behind the market's rebound while Energy turning the corner as well also provides some notable leadership. The latter sector's gain is another matter, however, since it is benefiting from a surge in oil prices which have the potential to sustain inflation pressures. Crude for June delivery is now up 1.4% near $63.40/bbl.
Separately, the leading indicators index (LEI) fell 0.5% in April, as seven of 10 components showed declines, while March was upwardly revised to show a 0.6% gain. Nonetheless, the index falling three of the last four months keeps the word "recession" on the minds of the bears arguing that deteriorating fundamentals leave the market in jeopardy for more downside. It is a common criticism that the LEI has predicted "nine of the last six" recessions and the LEI in Q1 averaged its first decline since Q3 of 2001, when the economy was in recession. We still believe consumer spending will hold up and keep the economy out of recession. DJ30 -4.22 NASDAQ -4.64 SP500 -1.66 NASDAQ Dec/Adv/Vol 1702/989/378 mln NYSE Dec/Adv/Vol 1838/1015/224 mln
10:00 am : Equities are still on the defensive as the bulk of industry leadership remains negative. Of the 10 economic sectors losing ground, Materials (-0.6%) paces the way followed by average declines of 0.5% for Energy, Utilities, and Telecom. Weakness in all four of the aforementioned sectors is not all that surprising, though, since they also rank among this year's best performers, averaging a gain of 13.7%.
Today's pullback, thus, is more reflective of stocks merely taking a breather. To the bulls' credit, market losses remain minimal as the liquidity factor continues to provide a floor of support for a market that continues to overlook the complacency in the market about risks. DJ30 -28.85 NASDAQ -4.56 SP500 -3.70 NASDAQ Dec/Adv/Vol 1626/865/186 mln NYSE Dec/Adv/Vol 1722/916/70 mln
09:40 am : So much for another record on the Dow giving stocks a lift out of the gate as a lack of overwhelming evidence to support current valuations and data running counter to overly optimistic rate-cut scenarios invite some early profit taking.
Earlier, initial claims unexpectedly fell 5K to 293K. That was the lowest level since mid January and is consistent with tight labor conditions. However, with high levels of resource utilization still a main Fed concern, the data aren't exactly arming the bulls with the confidence needed to build on recent gains. Bernanke recently saying the Fed does not expect significant spillovers from the subprime market to the rest of the economy or to the financial system, however, appears to be keeping early losses at a minimum. Upcoming Q&A, though, also carries market-moving potential. DJ30 -26.20 NASDAQ -3.84 SP500 -2.40 NASDAQ Vol 90 mln NYSE Vol 44 mln
09:15 am : S&P futures vs fair value: -3.7. Nasdaq futures vs fair value: -2.5.
09:00 am : S&P futures vs fair value: -3.2. Nasdaq futures vs fair value: -1.3. With the market rallying for about ten months now on increased hopes of an imminent rate cut, the surprisingly low weekly jobless claims number is doing little to support such confidence. After spiking to morning highs, both the S&P 500 and Nasdaq 100 futures fell to their lows of the morning almost as quickly.
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