EmailHo-hum, it was simply another move to a multi-year high yesterday for the S&P 500, which is at its best level since October 2007. Every sector participated in the advance, with the exception of the basic materials sector (-0.4%).
The move was defined not so much by unbridled buying interest as it was by a lack of selling interest.
Market participants aren't giving in to correction fears for a variety of reasons: (1) just about every pundit under the sun is saying the market is due for a pullback, but that any pullback should be viewed as a buying opportunity (2) there is a conditioned belief that a last-minute deal will get done on the sequester (3) there is a conditioned belief that if a sequester deal doesn't get done and there is market fallout as a result, a deal will soon be struck to settle the market's nerves and (4) traders continue to ride the wave of Fed liquidity in the absence of an exogenous scare.
Other reasons could be cited, but the overarching point is that the fear of missing out on further gains in the equity market continues to trounce the fear of anything bad happening. That mindset is impressive and at the same time unsettling.
Accordingly, while many are busy these days simply singing the praises of rising stock prices, we continue to preach the hymn of risk management in a market that effectively sees no evil, hears no evil, and speaks no evil.
At the moment, the cash market is indicated to open slightly lower.
That indication has unfolded amid some economic and corporate news and in front of the release of the minutes form the January FOMC meeting at 2:00 p.m. ET.
In particular, Office Depot (ODP) and OfficeMax (OMX) are said to be close to announcing an all-stock merger deal with a leaked press release indicating OMX shareholders would receive 2.69 shares, or $13.50 per share, of ODP stock for each share they own.
Earnings reports from Dell (DELL), Marriott (MAR), and Toll Brothers (TOL) have failed to move the broader market. Dell and Marriott both beat the Capital IQ consensus estimate by a penny while Toll Brothers came up nine cents shy of expectations and reported a 49% increase in new orders.
On a related note, it was reported that January housing starts declined 8.5% from an upwardly revised December estimate of 973,000 units to a seasonally adjusted annual rate of 890,000 (Briefing.com consensus 914,000). This was below expectations, but when factoring for the upward revision, the two-month average is essentially consistent with expectations leading into the report.
Building permits, on the other hand, jumped 1.8% from an upwardly revised December level of 909,000 to a seasonally adjusted annual rate of 925,000 (Briefing.com consensus 918,000). That was about in-line with expectations and will continue to be regarded as a hopeful leading indicator for residential construction activity.
In a separate report, producer prices rose 0.2% in January as did core prices, which exclude food and energy. The Briefing.com consensus expected total produce prices to be up 0.3% and core prices to increase 0.1%.
The surprise in the report was the 0.4% decrease in the index for finished energy goods that was a result of seasonal adjustment factors. The BLS said that was mostly attributable to gasoline prices, which fell 2.1%. That drop, however, was offset by a 0.7% increase in the index for finished consumer foods that was led by a 39% jump in prices for fresh and dry vegetables.
The gain in core prices was led by a 2.5% increase in the index for pharmaceutical preparations.
This report won't be alarming to the Fed, as the finished goods index is up just 1.4% on an unadjusted basis over the last 12 months while core PPI is up 1.8%.
The FOMC Minutes nonetheless will likely contain some hawkish strains regarding the QE program, but with Q4 GDP down 0.1% and the unemployment rate up to 7.9%, the doves should continue to call the QE shots.
--Patrick J. O'Hare, Briefing.com
[Editor's Note: With Page One in the publishing queue, it was reported by The New York Times that the ODP-OMX deal has not been finalized and that the press release announcing it was released prematurely. The comment above has been edited to reflect this report]
