Tuesday Morning – August 4, 2009

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Good morning. Now that the S&P 500 has eclipsed its nearest big round number (the S&P closed Monday at 1002.63) and the NASDAQ managed to breach 2000 by closing at 2008.61, the next big round number to watch for would be Dow 10,000. Of course, that’s still 713 points or 7.68% away. But the way things are going, we could be donning those old Dow 10K party hats in about a week and a half.

While it is a pretty safe bet that it was the quest to scale the latest mountain that may have influenced yesterday’s pop to the upside, we should also note that the news flow may have lent a hand. And while I am a firm believer that rehashing the news ranks right up there with watching paint dry on the excitement scale, a quick glance at yesterday’s headlines goes a long way in understanding why the bulls were able to keep on keepin’ on for yet another day.

So while I’ll apologize for the lack of creative writing skills this fine early August morning, running through the data points ought to paint a solid picture of the reasons for the ongoing advance:

July ISM Manufacturing:Construction Spending:Chinese Economic Data:Auto Sales:Dr. Doom Speaks (Again):Semiconductor Sales Rise:Geithner Says No Mas:The manufacturing index increased 4.1 points in July to 48.9, which was an 11-month high. This was also the biggest monthly gain in 4 years and was better than the consensus for a reading of 46.5 as well as June’s reading of 44.8.
Unexpectedly increased by +0.3% when a decline of -0.5% had been expected.
The CLSA Manufacturing Index rose to a 12-month high of 52.8.
Apparently the Cash-For-Clunkers program has been a big hit with car buyers as Ford (F) reported the first monthly increase in sales since November 2007.
Nouriel Roubini says that the advanced economies of the world are showing signs of bottoming.
The SIA reported that global semiconductor sales increased by 3.7% June, which was the fourth straight monthly increase.
Both Secretary of State Tim Geithner and Former Fed Chairman Greenspan said over the weekend that the danger of a financial collapse is now over and Geithner predicted that the Obama administration would not need to go back to the taxpayer for more TARP money.

So there you have it; at least seven reasons for yet another romp to the upside for the bull camp. And for those of you keeping score at home, the S&P has now rallied +14.05% in the last sixteen trading days. However, it is obvious that stocks are now overbought and overdue for a pullback of some sort. And for those in the trees-do-grow-to-the-sky club, we’d like to remind everyone that the S&P still has some work to do before returning to its former glory as the S&P will need to gain 56.1% from here in order to reach the old high set on October 9, 2007. But then again, with gains of 1.5% a day…

Turning to this morning, Personal Incomes fell by -1.3% in June, which was a bit worse than the expectations for a decline of -1.0%. On the other side of the report, Personal Spending was a little higher than expected at +0.4% vs. +0.3%. And in looking at inflation on the consumer front, the PCE Deflator was in line with expectations at +0.2%. Finally, we’ll get a look at pending home sales at 10:00 am eastern.

Running through the rest of the pre-game indicators, with the exception of Japan, which was up +0.2%, the major overseas markets are lower across the board. Crude futures are moving down with the latest quote showing oil trading off by $1.26 to $70.32. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.62%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open for a change. The Dow futures are currently off by about 40 points; the S&P’s are down by about 6 points, while the NASDAQ looks to be about 11 points below fair value at the moment.

Best wishes for a pleasant day and until next time, “may the bulls be with you!”