Pleasantly Surprised

Daily State of the Markets 
Tuesday Morning – March 2, 2010  

To hear the bears tell it, stocks should be heading lower right about now. Our furry friends remind us that there are the worries about sovereign debt contagion, which could easily usher in Credit Crisis II. There are macro concerns regarding the state of the recovery both at home and abroad. There is the fact that China is hitting the brakes, which, if not done with a high degree skill, could send the world’s fastest growing economy smashing through the windshield. There are the issues with the political system and our debt/GDP ratio. There are worries about inflation and/or deflation, depending upon who you talk to. And there is the thought that the stock market has run too far too fast, creating an overbought and overvalued market in the process.

However, after cutting through the doom and gloom being espoused by the glass-is-at-least-half-empty crowd, traders were pleasantly surprised to see stocks breaking away to the upside on the first day of March. And while the economic headlines once again weren’t exactly inspiring, the underlying news flow provided a spark to the bullishly inclined.

For starters, there were several reports that a new rescue package for Greece would be announced this week. While the naysayers focused on the fact that Greece is likely to postpone a 10-year note auction this week due to the fact that nobody is terribly interested in buying, the latest reports suggest that Germany’s state-owned bank would either buy Greek bonds or provide guarantees to other European banks who buy the bonds. Although this is sure to be a bumpy road, it does appear that a crisis has been averted in Greece.

Next up, while it wasn’t quite like the good ‘ol days, the bulls did take note of the four M&A deals that were announced on Monday. Remember, mergers and acquisitions are a sign that (a) businesses are confident enough about their outlook to go ahead and make a deal and (b) that valuations in the market are not stretched so far as to make the deal unworkable. In short, there’s nothing like a “merger Monday” to get the week started on the right foot.

And in the category of ‘miscellaneous chatter’ we’ll go ahead and put the pre-announcements in the semiconductor space (SanDisk was most prominent), the WSJ article touting Apple (AAPL), and a batch of fairly upbeat same-store sales previews from a couple of the nation’s retailers.

Another positive that didn’t get much press was the ‘spin factor’ as it relates to both the recent and upcoming economic releases. While it may seem obvious, there was a lot of talk Monday about how the weather has impacted economic activity on the East coast. For example, Larry Summers tried to talk down expectations for this Friday’s jobs report by reviewing how the blizzard(s) will affect the numbers.

So, with a handful of things going the bulls’ way on Monday, the S&P and NASDAQ broke away from the recent consolidation zone and made a run for the border. And don’t look now, but the Russell 2000 and Midcap indices are back to within a stone’s throw of their recent cycle highs. Yes, we recognize that the DJIA is still struggling with some resistance. But, with all the other indices movin’ on up, we’ll give the venerable Dow a day or so to play catch up.

Turning to this morning, we don’t have any economic data to review before the bell. However, stocks across the pond as well as futures here at home have moved to the highs of the session on speculation that EU will agree on an aid package for Greece.

Running through the rest of the pre-game indicators, with the exception of Shanghai and Hong Kong, the overseas markets are mostly higher. Crude futures are up $0.43 to $79.13. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.64%. Next, gold is moving up by $5.80 to $1124.10 and the dollar is higher against the Yen and Pound but lower against the Euro. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to green screens at the open. The Dow futures are currently ahead by about 45 points; the S&P’s are up about 6 points, while the NASDAQ looks to be about 7 points above fair value at the moment.

* Report includes items that make comparisons to the consensus estimate questionable

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