Update 1:10 p.m.:

Update 11:50 a.m.:

All of the earnings happy talk seems to be paying off heading into the last hour of trading.  The Dow is now up 66 points, near the high of the day.  Volume is light but traders are focused on re-starting the earnings rally. 

Bond prices in the long-end are finally succumbing to profit-taking.  The 2-year remains a very low .59%, and the 5-year is 1.70%.  The 10-year is now down 11/32s to yield 2.97%, and the 30-year bond is down almost a point to yield 3.99%.

Update 9:45 a.m.:

The market has been relatively quiet since the first hour.  After opening higher by 72 points, the Dow dropped to -24.  But the index is now higher by 32 points.  Pundits are trying to generate a new "buzz" about IBM and Goldman earnings.  IBM reports after the close today and Goldman before the opening tomorrow.  The chatter in the market is that the "whisper" numbers are moving higher.  In other words, traders are trying to generate a "buy" today before the news comes out.  It's all just part and parcel of the usual earnings season games. 

Bond prices are down very slightly on the day.  The 2-year is .59%, the 5-year 1.69%, and the 10-year is now down 5/32s to yield 2.94%.

Update 7:30 a.m.:

The Dow quickly traded up to +72, but the rally stalled there.  The National Homebuilders Index didn't help matters.  This sentiment index fell sharply to 14.  This is the lowest level since April 2009.  This is one of those indexes in which anything below 50 is to mean contraction and above expansion.  Clearly, the reading is in deep contraction mode.  The all-time low was 8 in January 2009, and the 14 reading isn't much better.  Builders reported poor traffic and a general reluction on the part of buyers to commit to new homes due to job and income worries.  Builders say that ultra-low mortgage rates, which some builders buy down even further, are not positively influencing potential buyers as would normally be expected.  

The Dow is now down about 10 points and volume is low.  The fall in stocks and the builders index has cut the early morning losses in bonds.  The 2-year note is down to .58%, the 5-year 1.67%, and the 10-year is down 3/32s to yield 2.93%.    

Morning Comment:

After Friday’s stock market beatdown, Dow futures are pointing toward a slightly higher opening this morning.  Last week certainly did not go as planned.  It seems that some traders and investors did bother to read below the “XYZ Corp. Beats Expectations” headlines and didn’t like what they saw for many companies.  Bank earnings were most at fault as the beat-expectations headlines came solely as a result of lowering loan loss provisions.  The disappointment from total revenues came as a surprise to many. 

This week traders will have a chance to get the market back on track as this is the heaviest week of “earnings season.”  Since the bad news from financials has been factored into prices, traders are hopeful other good reports will lift stocks again.  But the air of confidence that dominated heading into last week has been shattered.  Now an earnings rally is more of a hope than an expectation. 

Bond prices are down slightly to start the week after another week of stellar performance.  The 2-year is .60%, the 5-year 1.70%, and the 10-year is down 8/32s to yield 2.95%.  The bond market is the market that all of the Wall Street experts hate and have hated all year long, yet this is the market that continues to see heavy investor flows.  There is a message there.   

On the economic front, this is housing week.  We’ll start with the National Assoc. of Homebuilders Index will be released today.  That index has slumped badly in June, and this will likely lessen any fall for July.  Tomorrow we’ll get Housing Starts.  Starts fell very sharply in May and a small decline is expected for June.  Existing Home Sales will be released on Thursday, and a decline is expected.  But this one will be tricky.  Sales are reported when deals close, and this number will pick up some of the April home tax credit expiration traffic.  We’ll have to wait until the 26^th to get New Home Sales. 

The only other economic number of note this week will be Weekly Jobless Claims.  After the decline reported last week, everyone will be focused on whether last weeks decline was the beginning of long-awaited trend to lower claims or whether it was a fluke produced by the July 4^th holiday. 

I’m back after a week out, during which I paid little attention to the markets.  On a week-over-week basis, it looks like not much happened, but I know it was more eventful on a  day-to-day basis.  In fact, you can say this is what most of the entire year has looked like.  We’ve certainly had volatility, but stocks are down roughly 3-5% on the year.  That can be made up is one good day.  Perhaps we’ll see a “trending” market the rest of the year, but it’s been pretty much a zero sum game so far.   Only in bonds have we had a trending market as rates have fallen sharply this year.  If stocks do start actually trending one direction or the other this year, we will likely see bonds more inclined to trade more in sync with stocks.  If stocks do trend higher, bond yields simply must reverse at least part of this year’s rally if not all of it.  If stocks resume a bear market stance, I might get my 2% 10-year note rate sooner rather than later.

 I’ll be back with updates. 

Dwight Johnston