On the Verge of Growth

Daily State of the Markets 
Monday Morning – March 8, 2010  

While there was an abundance of positive factors at work on Friday, everybody can probably agree that it was the big surprise out of the Big Kahuna of economic data that sent the Dow up another 122 points. Although the administration’s spin doctors had been preparing us for a downbeat report on Nonfarm Payrolls due to the onslaught of snow on the east coast, the data was actually pretty upbeat. Thus, the collective sigh of relief caused some traders to lean on the buy button and others to cover some shorts.

In case you missed it, the Labor Department reported that the economy lost 36,000 jobs in February. While this may not sound like great news when viewed in a vacuum, the job loss totals were about one-half of what had been expected and the prior two months were revised higher by a total of 35,000 jobs. In addition, the Unemployment Rate held steady at 9.7%. So, all in all this was a pretty decent report.

Had the expectations for disappointment not been built up during the week, the report probably still would have been seen in a positive light. While the data didn’t get much press, the Household Survey showed that 308,000 more people counted themselves as employed in February, which followed January’s gain of 541K. So, when you add the trend of Nonfarm Payrolls to the improvement in the Household Survey, it is easy to argue that the economy appears to be on the cusp of job creation. And this idea alone is probably worth a few hundred points in the stock market.

As we mentioned though, the jobs report wasn’t the only thing working in the bulls’ favor on Friday. A big part of the improved sentiment toward stocks is the fact that the fear of credit contagion in Europe is rapidly dissipating. The fact that Greece’s 10-year note auction was oversubscribed by a factor of three indicates that confidence is returning to the market and that the chances of this thing blowing up into a full-fledged crisis are falling daily.

In addition, the bulls liked what they heard out of both China and Japan. The bank of Japan talked about the idea of further easing measures while there were no surprises from China’s discussion of economic and monetary policy. Premier Wen stuck to the script and said that Beijing would continue to pursue “supportive fiscal policy and appropriately accommodative monetary policy.” This helped ease concerns that China may accidentally press too hard on the brake pedal and wind up damaging the global recovery in the process.

The bulls also got a hand from Apple (AAPL), which announced that its new, super-cool iPad slate device would be available in about a month as well as some renewed M&A speculation.

Finally, there was the report from the CBO which helped ease fears about the administration’s plans to tax/penalize banks at every turn. The Congressional Budget Office reported that Obama’s proposed bank tax would ultimately be borne by bank customers and would also wind up reducing the amount of capital available for lending. Not exactly a desirable result from the administration’s point of view.

Friday’s action was positive from a chart standpoint. While it is encouraging to see the Dow and S&P rapidly approaching their January highs, it is perhaps more important to note that the NASDAQ, S&P Midcap, Smallcap, and Russell 2000 indices have all broken on through to the other side and making fresh new-cycle highs on a daily basis.

Turning to this morning, we don’t have any economic news to report before the bell and so far at least, things are fairly quiet in pre-market trading.

On the news front, McDonald’s came in with solid global sales comps and Moody’s is talking downgrades in Portugal.

Running through the rest of the pre-game indicators, the overseas markets are split by region with Asia higher and Europe waffling around breakeven. Crude futures are up $0.31 to $81.81. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.71%. Next, gold is moving down $1.10 to $1134.a0 and the dollar is lower against the Euro and Pound but higher against the Yen. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a flat open. The Dow futures are currently off by about a point; the S&P’s are down about a point, while the NASDAQ also looks to be just about a point below fair value at the moment.

Wall Street Research Summary

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