All About the Calendar

Daily State of the Markets 
Thursday Morning – March 18, 2010  

In a fitting tribute to St. Patrick, the screens were adorned in green when the closing bell rang on Wednesday as the market worked its way higher for the 13th time in the last 15 sessions. Even the Dow Jones Industrial Average manged to join in on the fun as the venerable market index finally took out its January high-water mark and finished at a new cycle high for this bull market.

When stocks move relentlessly in one direction, the natural question is, why? I’ve received a bunch of notes lately asking about the catalyst behind the recent joyride to the upside. While we could point to the improving macroeconomic expectations, the waning worries about Greece, the fact that Fed is starting to return to normal operations or the diminishing concerns about over exuberant legislative efforts, the bottom line is that this move is starting to be all about the calendar.

Although it does look like the economy is starting to pick up a little steam and the banks appear to be attracting some attention from a valuation standpoint, we’re going to suggest that the real source of the seemingly never ending march higher is fear – fear of underperformance, that is.

A year ago, it was downright honorable to be playing defense and holding on to as much of your precious capital as possible. No one was worried about the return on their money, only the return OF their money. But now that the banking system and the economy have survived and it looks like there are blue skies ahead, investors are returning their focus to rate of return. And in short, we’ll opine that with the market now back in the plus column for the year and only seven trading days left for money managers to get new positions into portfolios for the end of the quarter, more than anything else, it is performance anxiety that is fueling the buying of each and every dip right now.

Looking at Wednesday’s action, things got started off on the right foot with the PPI report. The data on prices at the producer level confirmed that the Fed’s assessment of inflation is correct and that after a brief scare in February, we can indeed put the fear of inflation on the back burner. The bulls then got another boost from the financial sector as (a) traders began to realize that it might be tough to pass punitive legislation, and (b) the banks are able to raise money needed to pay back TARP (Hartford Financial Services raised $2.4 billion sooner than had been expected).

However, we should probably note that the indices did finish off their best levels as a late-day downgrade of the global financial sector at Citi produced a little profit taking in the final hour.

From a chart perspective, those that like to study the wiggles and giggles of the lines on a graph should take a peek at a weekly chart of the S&P. What you will find is that since the index has now surpassed its January high, there isn’t any meaningful resistance until the 1200 area. So, although stocks are overbought and due for a rest, if the bulls can find a way to keep things going, they do have some room to roam.

Turning to this morning, the Consumer Price Index for February was unchanged, which was a tenth below the consensus for +0.1% and January’s reading of +0.2%. When you strip out food and energy, the so-called Core CPI came in at +0.1%, which was in line with the consensus for +0.1%.

In addition, the Labor Department reported that initial claims for unemployment insurance for the week ending March 13th fell by 5,000 to 457K, which was a smidge above the expectations for a reading of 455K. Continuing Claims for unemployment for the week ending March 6th were also above consensus at 4.579M vs. expectations for 4.522M.

Running through the rest of the pre-game indicators, the overseas markets are fractionally mixed. Crude futures are down $0.56 to $82.33. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.63%. Next, gold is moving up $2.40 to $1126.60 and the dollar is higher against the Yen, Euro and Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a rather flat open. The Dow futures are currently ahead by about 10 points; the S&P’s are up about a fraction of a point, while the NASDAQ looks to be about 3 points above fair value at the moment.

Wall Street Research Summary

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