EmailYesterday was one of those days where the sum of the parts didn't quite add up. The major indices posted decent-sized gains, but there was less to the gains than met the eye.
The defensive-oriented sectors -- health care, utilities, telecom services, and consumer staples -- led the way; volume was a paltry 558 mln shares, which was the second lowest total this year; and Treasuries advanced alongside stock prices.
The Dow Jones Industrial Average set a new, all-time closing high and the S&P 500 finished less than two points away from doing the same. Yet, everything felt so artificial. It was a Potemkin rally, if you will, with a facade of bullishness on the exterior, but nothing behind it.
Follow-through has been lacking this morning for reasons that are both convenient and clear. Headlines out of Europe are largely to blame and are the source of decent-sized losses in European stock markets that range from 0.8% to 1.6%.
In particular, Cyprus continues to provide a convenient excuse to take some profits as the day of bank opening reckoning arrives tomorrow.
Italy is back in the spotlight mix this morning with reports suggesting it is unlikely a coalition government will be formed and that new elections will need to be held. The Bank of England, meanwhile, has indicated banks there have a GBP 25 bln capital shortfall. And for good measure, a -0.3% final Q4 GDP print for France is throwing salt in the eurozone's no-growth wound.
There has been some fallout in Italy and Spain's closely-watched bond markets where yields on 10-year debt have risen 11 basis points and 10 basis points, respectively, to 4.65% and 5.03%. The euro is down 0.6% to 1.2785 against the dollar.
The S&P futures are down seven points and are trading 0.5% below fair value. That negative disposition is setting the stage for a lower start for the cash market.
The economic calendar features the February Pending Home Sales report (Briefing.com consensus +2.0%; prior +4.5%) at 10:00 a.m. ET and the market will hear its share of Fedspeak today as four presidents -- Evans (Chicago), Pianalto (Cleveland), Rosengren (Boston) and Kocherlakota (Minneapolis) -- are due to give speeches. Evans and Rosengren are FOMC voting members this year and noted doves.
We'll see if the market can regroup when doves cry and Europe closes. For now, the facade of strength the market put up yesterday has been knocked down by the headlines blowing out of Europe. As to be expected, some participants are taking shelter in the Treasury market where the 10-year note has risen 15 ticks, lowering its yield to 1.86%.
