Update 1:05 p.m.:
After watching the big opening rally fade away, stock traders spent the last two hours trying to restart the engine. But in the last hour, most of the trading in the Dow was between -20 and +20 as volume dwindled. The usual suspect traders did come in during the last ten minutes of trading and managed a close of +57 points on the Dow, but that was mostly window-dressing on a disappointing day. The S&P closed higher by .5%, and the NASDAQ barely eked out a .1% gain. I suppose the bulls can declare a victory today, but it certainly didn't seem like a good way to end the day after the rousing start.
Meanwhile over in bondland, traders were surprised by yet another rally in bonds. Most everyone was expecting the bond market to slip back a bit after an almost uninterrupted run to the lowest yields in over a year, but some big buyers had other thoughts. The 2-year ended at .61%, the 5-year 1.76%, and the 10-year gained 14/32s to yield 2.93%. The 30-year bond gained a full point in price to yield 3.89%.
There are no economic statistics tomorrow. Frankly, I have no guess at all how the markets will open tomorrow and trade. Where the euro trades no longer seems a factor, and the big rally in European stocks did not carry over here past the opening credits. Today was clearly a big disappointment for the bullish contingent, but what happens one day doesn’t have much to do with what happens the next.
Update 11:00 a.m.:
U.S. stock traders had dreams of an up 200 or 300 point day to mirror the rally in Europe. But after shooting as high as +162, stocks have been slippint steadily back down the hill. The Dow is now up only 8 points, and the NASDAQ has seen a 2% gain turned into a very small loss. There is no explanation for this, other than bullish traders could not lure investors into the market along with them. Stocks can certainly rally back with two hours left in trading, but this retreat in stocks and rally in bonds tells us which way the money is flowing.
Bond prices are higher. The 2-year is .62%, the 5-year 1.76%, and the 10-year is now higher by 12/32s to yield 2.94%. The 30-year bond is higher by 26/32s to yield 3.90%.
Update 8:30 a.m.:
Stocks jumped to a high of +162 on the Dow, but the move has stalled at least temporarily. The Dow is now up 115 points, and it might be unrealistic to expect stocks here to match the gains in Europe.
I am very surprised at the bond market. Even with stocks trading higher, bond prices are also now higher. The 2-year is .62%, the 5-year 1.78%, and the 10-year is now higher by 9/32s to yield 2.95%. The 30-year bond is up 25/32s to yield 3.90%.
Update 7:04 a.m.:
As mentioned below, there was no news to spur the rally in stocks that began in Europe. It's merely a case of stock traders buying stocks that they believe are distressed and/or "oversold." The Dow fell by almost 800 points in the two weeks of June 21 through July 2. Traders are just hoping that was overdoing it, and they are playing for some sort of bounce.
The Dow was already up 130 points in the first 30 minutes of trading. The ISM Non-manufacturing index has been released and it fell by more than expected. But this index does not qualify as an important indicator due to its questionable track record, and the market quickly shrugged off the report. The Dow is dipped slightly to +115 but is now 150 points higher. If the U.S. market matches the performance of European indexes today, the Dow should be in for a 200 to 300 point gain.
Bond prices are sliding as traders expect stocks to take over the spotlight this week and next. The 2-year is .65%, the 5-year 1.81%, and the 10-year is unchanged at 2.98%. Only the 30-year bond is higher in price with an 8/32 gain to yield 3.93%.
I've posted a new Longer-term Commentary.
Morning Comment:
Stocks are up big in Europe, and that’s leading to an expected big opening here. Dow futures are higher by almost 100 points ahead of the opening. Why? Frankly, I can’t find anything that is news related. The most likely explanation is that stock traders and pundits are looking at the week ahead and they see none of those pesky economic numbers of note this week. The only number of substance will be Weekly Jobless Claims.
What stock traders do see ahead is the beginning of earnings season. You know the drill. Analysts put out earnings estimates that they know are too low. Then, all the companies beat those earnings estimates and we all celebrate. The season doesn’t really begin until next week, but market pundits will be revving up the happy talk this week.
Quickly forgotten was the awful jobs data we got Friday, and the likelihood that more bad economic news is ahead. But traders live day-to-day, and today is a day for dragging the bull back into the arena. There were some negative articles for sure this past weekend. The head of the International Monetary Fund says that China’s property bubble is in the early stages of bursting. A couple of famous or infamous market pundits are quoted with dire predictions about stocks over the years. And, don’t forget, by the end of this month three million families will have lost unemployment benefits if Congress continues to fail to act. But the stock market was down sharply next week, and the market remains mostly run by the bulls. They see the world of stocks as “cheap.”
Surprisingly, bond prices are up just a bit to start the day. The 2-year is .62%, the 5-year 1.80%, and the 10-year is higher by 3/32s to yield 2.97%. If stocks do rally sharply today (Europe is up about 3%), bond yields should rise a bit.
I”ll be back with updates.
Dwight Johnston
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