Posted By: Patti Domm | Executive Editor cnbc.com | 28 Jan 2009 | 07:29 PM ET
Stocks are on their longest winning streak since November, and the question is how quickly will investors decide to sell the rally.
The markets head into Thursday facing some key data, including the weekly jobless claims at 8:30 a.m.; durable goods for December, also at 8:30, and new home sales at 10 a.m. There are also earnings from Ford, Royal Dutch Shell, 3M, Eli Lilly, Sony, AstraZeneca, Kodak, Colgate-Palmolive, Jet blue and Starwood Hotels. After the bell, Amazon.com reports, as does Chubb, KLA-Tencor and Juniper Networks.
Stocks bounced off the opening Wednesday, boosted by buying in financials on news the government could soon unveil a new rescue plan for banks. CNBC's Steve Liesman reported Tuesday that the Obama Administration could announce a "bad bank" to take over the toxic assets on banks' books by next week.
The "bad bank" plan got mixed reviews from some pundits but sparked a relief rally in the financial sector on the idea that clearing the decks for banks would immediately strengthen their balance sheets and spur lending. However, the plan would also come with more strings attached including possible government investment in common stocks of banks.
Treasury Secretary Tim Geithner, in his second day on the job, would not discuss the specifics but said the government was working to preserve the private banking system. He said the next step would be announced "relatively soon."
Late in day, the House of Representatives approved the $825 billion stimulus vote, but Republicans, who have their own plan, voted against it. The success of the bill is a big test for the new Obama Administration, and the markets are watching closely. The Senate now moves ahead on its version of the bill.
The Dow Wednesday jumped 200 points, or 2.5 percent to 8375, and the S&P 500 rose 28 points, or 3.4 percent to 874. the Nasdaq also jumped more than 3 percent to 1558. The Dow was up for a third day, and the S&P and Nasdaq were up for a fourth day. The S&P and Nasdaq had their longest advances since November, and it was the longest run for the Dow since Jan. 2.
The financial sector rose 13 percent. "It was another reason for people to cover shorts," said one trader, who added that there were buyers of all types in stocks Wednesday.
Treasurys though saw sellers after the Fed's afternoon announcement proved disappointing to some traders who were anticipating more detail about the Fed's plan to buy Treasurys. In its statement, the Fed said it is prepared to buy Treasurys "if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets."
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The 10-year moved lower, while its yield rose to 2.660 percent and the two year's yield rose to 0.891 percent.
"From a rates market perspective, the debate is that some people believe the Fed will implement a program to buy U.S. Treasurys and that will keep rates low in a Japanese-style quantitative easing ... I think that's a misinterpretation by the market," said Jim Caron, head of global interest rate strategy at Morgan Stanley.
Caron said the Fed's statement makes it clear that the Fed could buy Treasurys if it thought to do so would be to help keep other rates low. "Our view is the yield (on the 10-year) can rise to 3 percent, 3.25 and even 3.50, provided the mortgage rate versus the Treasury rate rises. Many people argue Treasury rates are capped. There is still scope for Treasury yields to rise as the mortgage to Treasury spread narrows," he said.
Traders from all markets are watching commercial paper Thursday. Several hundred billion dollars worth is set to roll over, and the question is how will it fare. The Fed has been an active participant since late October in the commercial paper market, a big source of corporate short-term funding. In a note, Morgan Stanley analysts said that: "Any way you look at it, this will be one of the first true tests of a Fed liquidity program post fourth-quarter stresses as CPFF Commercial Paper Funding Facility) might be in the midst of being unwound or at least used less frequently. This may be a good thing, in our view, as it would indicate that a fundamental money market has opened up."
One trader said he'll be watching "who's rolling it, who's buying it, who's trying to re-up it."
"The Fed allowed them to term out their commercial paper to three months. Three months is now on us. The question is has the credit situation stabilized enough so that people can roll over their debt in the commercial paper market? We would argue that they could," said Caron.
Sign of the Times
As corporations across the country chop thousands of jobs every day, it's now the U.S. Post Office's turn to pare back. On Wednesday, the postmaster general told Congress the post office could be forced to cut one day of mail delivery per week because of deficits.
Futures are down -- a typical day-after the Fed day reaction. Let's see how much profit taking or buyer step in at the resistances.
@ES 863.75 -7.75 -0.89% @NQ 1222.25 -9.00 -0.73%
Futures Fall Despite Stimulus Victory CNBC.com | 29 Jan 2009 | 05:34 AM ET
US stocks looked set to reverse the week’s winning streak at the open Thursday, despite the progress of the $825 billion stimulus package and optimism over the “bad bank" plan.
The stimulus was passed by a sharply divided US House of Representatives Wednesday, handing President Barack Obama the first major legislative victory of his tenure. Get Dow 30 Extra-Hours Quotes Here Pre-Markets/Futures Data
Meanwhile, government officials have discussed pouring a further $1 trillion to $2 trillion to help backstop the banking system, the Wall Street Journal said, citing people familiar with the matter.
The Federal Reserve signaled it would keep interest rates near zero for quite “some time” Wednesday, and said it will use unconventional tools to battle the fallout.
The day’s earnings were kicked off by Royal Dutch Shell, which said the fall in crude prices was hampering its bottom line. The oil major said fourth-quarter Current Cost of Supply (CCS) net profit fell 28 percent to $4.79 billon.
3M, Eli Lily, Wyeth and Altria are all due to release earnings before the bell.
Investors will also be sifting through a new batch of economic data. Jobless claims data for the week ended Jan 24 is released at 8:30 am. December durable goods is out at the same time, and new homes sales figures for December are released at 10 am.
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