EmailAs if there was any doubt the Dow Jones Industrial Average would go down yesterday, it eked out a 5-point gain to extend its winning streak to nine sessions. That is the longest such streak since 1996. The Nasdaq and the S&P 500 also managed slight gains in a session that featured the second-lowest volume total of the year at the NYSE (585 mln shares).
The lackluster participation was peculiar given that there was a legitimate rally point in the February Retail Sales report. It could be a sign of some price exhaustion, latent concerns about buying at the top, or a product of being fixated on the election of Pope Francis I. We don't know for sure, but it is fair to say that yesterday's trade was a bit of a disappointment.
Things are looking up this morning, though. The S&P futures are trading 0.3% above fair value, which is in keeping with generally upbeat performances by Asian and European markets today.
Once again, there is a good basis for the stock market to maintain an upward bias and for trading volume to increase. That should happen, but whether that happens is another question.
The initial claims report for the week ending March 9 is what we have our eyes trained on. It delivered encouraging news, showing a further drop in initial claims to 332,000 from 342,000 in the prior week. This is the third straight week initial claims have been below 350,000, helping substantiate a view that labor market conditions are indeed improving.
With the sequester in place, there may be some skepticism about that trend persisting. Nonetheless, the latest report fits neatly with other data points signaling a pickup in economic activity.
Continuing claims for the week ending March 2 dropped by 89,000 to 3.024 mln (Briefing.com consensus 3.103 mln).
Looking at the Producer Price Index for February, it revealed a 0.7% increase that was driven by a 3.0% jump in the index for finished energy goods. That was slightly ahead of the Briefing.com consensus estimate of 0.6% and marked the largest monthly increase since September 2012.
Core producer prices, which exclude food and energy, were more subdued. They rose 0.2%, which was in-line with expectations. A jump in prices for pharmaceutical preparations played a part in the increase, as did an advance in the index for plastic products.
Both total and core PPI are up 1.7% on an unadjusted basis over the last 12 months, which is well within the Fed's inflation tolerance zone.
Separately, the fourth quarter current account deficit widened to $110.4 bln (Briefing.com consensus -$112.0 bln) from $107.5 bln.
The S&P futures didn't react much to the data, which is again surprising given the positive implications for job growth in the initial claims report. Then again, knowing the market's concerns about improving job growth being a catalyst for the Fed to alter its thinking about monetary policy helps explain in part why the response hasn't been more bullish.
As to be expected, the Treasury market is on the defensive this morning. The 10-year note is down 10 ticks and its yield is at 2.06%. Most of those losses, however, were recorded ahead of the data releases.
It may be another touch-and-go trade today as participants press the case for new highs against the specter of the Fed possibly getting less aggressive with its monetary policy before the labor market recovery is fully entrenched.
That is a misplaced concern because the market should be cheering a strengthening recovery. If nothing else, a relatively weak response to good economic news may be indicative of the mounting challenge the Fed faces in managing its exit policy in the future.
