The Creep Step

Daily State of the Markets 
Friday Morning – January 15, 2010  

Good morning. As a long-time baseball and softball coach, I have probably yelled the words “creep step” to the team’s infielders tens of thousands of times over the past 15 years. In case you’re not familiar with the term, the idea is for the infielders (and outfielders too) to first get into a good defensive position as the pitcher begins their windup and then to slowly creep forward as the pitcher releases the ball. This keeps the defender moving and on their toes; ready for anything.

I will admit that trying to tie this defensive fundamental from baseball and softball to the stock market might be a bit of a stretch. However, it is Friday and it has been a long week, so I’m hoping that maybe, just maybe, you can cut me some slack. So here goes. I can certainly say that traders have been on their toes recently – appearing to be ready for anything – and that the market has most definitely been creeping higher; step by step. (I know, I know; that wasn’t great… Good thing it’s Friday, eh?)

More accurately, traders have been anxiously awaiting the quarterly waterfall of earnings reports that is about to wash over Wall Street again. And in our estimation, it has been the relatively high level of expectations that has kept stocks doing the creep step to new highs. (Sorry, I had to take one more shot at it!)

What is interesting is that stocks have been creep-stepping higher despite some uninspired economic news, some disturbing political developments, and a market that it overbought and due for a pullback. And while this is the season for money to come into the market, quite honestly, we would have expected the bears to show up more than once so far this year.

Although the bulls have been able to find a way to push the indices ever-so slightly higher on an almost daily basis, the bears continue to complain about the lack of volume and suggest that the market is setting up for a bout of real selling. Our furry friends point to valuations. They relentlessly moan about the jobless recovery. And they espouse to anyone listening that the market simply can’t go any higher. To which, the bull camp tends to respond, “Do I hear 1200?”

One thing that I’ve learned over the past 30 years is that once a market gets on a roll, it usually takes something fairly substantial to keep investors from piling on after the rally becomes obvious to everyone under the sun. And when my dental hygienist feels compelled to tell me that stocks are really doing well again, well, you get the idea.

Thursday’s session could have easily gone the bear camp’s way. The report on retail sales was surprisingly weak, the administration made their populist attack on the banking system public, weekly jobless claims rose unexpectedly, and there was talk of the U.S. ramping up airline security in response to new threats from Al Qaeda.

A year ago, such a string of not-so great news would have sent the Dow down 200 points. But that was then and this is now. And now, it appears that buyers are still looking to get in on the stock market fun. So, until something comes along to question the bulls’ conviction about an improving economy and increasing earnings, it looks like the – wait for it – “creep step” might be newest market move.

Turning to this morning, earnings out of Intel (INTC) initially gave the futures a boost. However, word that revenues were light at JP Morgan Chase (JPM) has stirred up some selling.

On the economic front, the Consumer Price Index for December increased by 0.1%, which was a tenth below the consensus for +0.2%. When you strip out food and energy, the so-called Core CPI came in at +0.1%, was in line with the consensus for +0.1%. On a year-over-year basis, the CPI has increased by 2.7% while the Core is up 1.8%

Next, January’s Empire Manufacturing Index (designed to indicate the state of the manufacturing sector in the New York region) was reported at 15.92, which was above consensus expectations for 12.00

Running through the rest of the pre-game indicators, the overseas markets are fractionally mixed. Crude futures are down with the latest quote showing oil lower by $0.34 to $79.05. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.69%, while the yield on the 3-month T-Bill is at 0.05%. Next, gold is moving down by $6.80 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 lower open. The Dow futures are currently off by about 15 points; the S&P’s are down about 3 points, while the NASDAQ looks to be about 2 points below fair value at the moment.

Wall Street Research Summary

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