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At Arm's Length: 03.19.04 (8:00 am EST)
This is the third Friday of March which under normal circumstances would be a triple witching. But this time around, an additional expiration takes place. Today, adding to the volatility not only do stock index futures, stock index options, and stock options expire but single stock futures (SSF) also take their leave. A full explanation of this four times a year anomaly can be found here.
Don't expect much in the way of movement today after the last week of declines, followed by a rebound that was anything but bargain hunting and finally, a limp attempt attempt to shrug off some misaligned news. Let's take a look at the numbers first. The major indices lost some additional ground with more issues declining than advancing. The Dow dropped 4.52 points on its way to a finish of 10,295.78 or a 0.04% retreat. The S&P 500 shed 0.13% to end the day at 1,122.32 and the NASDAQ, troubled by the European Unions actions against Microsoft dropped 14.22 points to finish at 1,962.44.
The possible capture of Osama's number two caused a little bit of turmoil but that was nothing more than speculation. Oil prices also joined in on the downturn, which was welcome but hardly put a dent in the worry that this fuel, vital to far too many economic forecasts, would pull the rug out from under both the anemic economic recovery and the stock market as well.
The new job claims fell slightly but that piece of good news will be derailed by the slightest economic misstep - and there are plenty of possibilities of that happening.
The Treasuries still have a terror premium built in to their pricing and this was in full glory as the news of a possible capture made news today. This caused them to lose ground in the early trading Thursday. An increase in wholesale inflation in January coupled with a drop in jobless claims moved the fixed income markets.
With the finally released and newly calculated January producer-price index with an increase of 0.6%, above the market consensus (the forecast was for a 0.4% increase). The climbing price of oil added to the increase and when removed, the Core PPI, which excludes food and energy, jumped 0.3%.
At Arm's Length: 03.18.04 (7:50 am EST)
A high ranking oil official who was previously employed at British Petroleum once quipped that when oil reaches $25 a barrel, his company literally printed money. At the close yesterday, the price had reached $38.18 a barrel at the New York Mercantile Exchange for April delivery gaining 70 cents. These prices haven't been seen since Sept. 24, 1990.
The oil industry is pointing towards the increase as a bullish outlook on inventories - which they claim was mistake. But the practice of building reserves and closing refineries in key points around the country are beginning to resemble the stranglehold that Enron placed on electricity in California in the not-so-distant past. There, if your memory serves you, the company starved the residents of that state by closing generating plants and then increasing prices beyond the ability of the state to pay.
It seems the problems with inventory, a wise idea when prices are low, comes with estimating the amount. Accounting is nebulous at best with management of the reserves, which was established after the oil embargo of 1973-1974, is also being questioned. President Bush, a former oil guy himself, has mandated that the reserves be filled to capacity "in a deliberate and cost-effective manner". Now that directive may come back to bite the administration in the form of the most contentous types of inflation: the price at the pumps.
Other watched commodities also rose yesterday. Gold, previously thought of as the anti-stock, jumped $4.50 for April on the Comex division of Nymex closing at $407.10 an ounce. May silver prices also settled higher at $7.26, up 9.3 cents .
The fixed income market was little moved by the Consumer Price Index or CPI numbers, which was softer that Fed target of 2.0%. The Producer's Price Index will be released today after having been withheld due to a "complex" recalculation of the index to blame. It will take some time for the markets to digest this number from January.
The concern for Treasury buyers continues to be based on the inability of the yields to "find a range". Corporate supply was a big question mark for investors who short this market. With inflation expected to stay low this year, most of the pressure on these investments hinges on the jobs claims, which is expected to rise, and mortgage refinancing activity.
The Mortgage Bankers Association's refinancing index increased to 4983.7 in the week ended March 12. That is a jump of 39.7%, with an increase of 5.6% for the home purchase index. Continued support from the housing markets will allow the central bank to take its time before raising rates.
There is little likelihood that the markets will achieve a three index - three in a row positive finishes today. There will be more earnings to digest today but now, those earning are being held against the possibility the job recovery may impact those reports down the road. The Dow finished the day up, closing at 10,300.30, up 115.63 (+1.14%), with the S&P 500 posting 1.17% gain to close at 1,123.75 up 13.05 points. Bargain hunters returned to the NASDAQ as well pushing that index to 1,976.76, up 1.73%
At Arm's Length: 03.17.04 (8:50 am EST)
With a little luck - and a Happy St. Patrick's day to all of those who believe in luck - the markets might make it two in a row. Futures look good but that can change as quickly as the sell-off in the markets yesterday. That dip was followed by a big bounce into positive territory to end the day up as the markets fully digested the Federal Reserve's remarks concerning interest rates.
In sports, the word "potential" is often used to describe an athlete who has done anything yet. The fed chose to use the word "lagged" which might mean that what ever is going to happen, hasn't happened yet. Comments such as "new hiring remains subdued, other indicators suggest an improvement in the labor market" might mean that the economy has potential.
Let's take a look at the numbers - even though they won't reflect the choppiness of trading yesterday and are not a predictor of any smooth sailing today. 3M, as expected, was well received at the open yesterday, and kept the blue-chips up adding 29 points to the overall Dow Jones Industrials gain for the day of 81.78 to finish at 10,184.67, which was up 0.81%. The S&P 500 finished the day at 1,110.70 on good volume with winners outpacing losers 2 to 1. The NASDAQ ended the day up 3.89% with a close of 1,943.09. The The yield on the 10-year Treasury note fell to 3.689% making the fixed income market a continuing challenge as refinancing is expected to put more pressure on these securities. The dollar is not really making any headway one way or another. Oil is headed towards all time highs.
In the absence of the Producer's Price Index, a number that has been withheld for calculation reasons and a figure more accurately reflecting the manufacturers ability to price their goods, the Consumer's Price Index may have an effect on the market but its doubtful. The core index which excludes food and fuel was up 0.2%; the CPI was 0.3% as expected. The markets are expected open strong and be "wearin' of the green".
At Arm's Length: 03.16.04 (7:30 am EST)
European markets did not find any firm footing overnight, which will have a hangover effect for the US markets when they open today despite strong futures numbers at the open.
The Dow Industrial Average continued to trim its previous year's gains losing an additional 1.3% to finish at 10,102.89.
Technology can not seem to find it's footing once again with the NASDAQ selling on Monday adding to loses in Europe overnight. The Composite Index dropped another 2.3%.
Today however, will be different. Markets are hoping for some enthusiasm to come from such sources as 3M, which increased it's third quarter and full year outlook, the belief that Federal Open Market Committee meeting today will leave interest rates where they are, and that job hiring will no longer be as week in the coming three months.
3M's numbers will add a positive boost for the Dow but the talk of correction among market pundits continues. This is worrisome largely because traders are correcting what was seen as a strong, recovery based market. The pull back, if it continues could disrupt this confidence though if it lasts through the end of the month.
The F.O.M.C. expects to leave short term interest rates right where they are. This historic low rate has left the Fed with little or no room to maneuver. The belief that this interest rate will aid in job creation and the plea for patience will add little to change the way the economy is recovering. Patience is one thing but waiting for Godot took less time.
Reaching for any positive job news, Manpower, the temporary worker agency has forecasted an increase in hiring with the caveat that employers are doing so cautiously. Ready to make a move in the opposite direction, employers are seeing some strength but not enough to hire permanent workers. The numbers coming from this quarterly survey of 16,000 employers is so little changed it is hardly news. With the majority of employers (62%) digging in their heels, this news will not cause any celebrations.
At Arm's Length: 03.15.04 (8:01 am EST)
Even as sellers took Friday off - amid light volume I might add - the week past could have turned out to be a long overdue correction of a market that had become overheated or worse, the end of a reflation rally. But let's take a look at the numbers first.
The Dow Industrials shed 465 plus points last week, which seemed to catch the bulls off-guard. Subtract those losses from the February high for DJIA, and you are looking at a market trading 600 points lower. The NASDAQ is almost 10% lower than it's January high.
So who can blame investors for wanting to play the blame game even if the blame is not easy to affix to one or even more than one event. The tragedy in Spain and the now worrisome and possible knee jerk reactions from the newly elected Prime Minister who may yank Spain away from their commitment in Iraq - adding relevance to the value of terrorists attacks - will keep Europe on edge. The markets overseas and the strength of the dollar, which are opening the week weaker, will overflow into the US markets whether we like it or not.
That weak dollar surprised others by suggesting that it is having little effect on exports as the trade deficit blossomed to a record monthly high. The continued weakness in unemployment could have been a factor. Or perhaps investors have begun to look at the deficit as a ball and chain on the markets. Or worse, the only place for investors to be is no longer a place investors want to be.
Alan Greenspan, the Federal Reserve Chairman along with his cohorts have left many of us with no other choice but to put our money in the equity markets. Pensions funds and mutual fund investors have piled into the market over the last year trying to recoup losses from the not-so-long ago bubble burst. Alan has left many asking this question recently. Who would want to own long term debt - or short term Treasuries - junk bonds trading at 7% yield, or money markets not even worth looking at, when the equity markets seemed so anxious to forgive and forget?
Adding volatility at this stage in the game is not a harbinger of worse times to come but it does show that there is still a good deal of sensitivity in place.
This week the Federal Open Market Committee meets with little or no chance of any change in interest rates. The market has already deemed this a non-event. An additional no surprise comes Tuesday when numbers will show that continued low mortgage rates have given new housing starts a brief increase for February.
The Consumer Price Index is expected to show modest gains when those numbers are announced on Wednesday. Core inflation it seems, is not much of a factor just yet. Mostly because the core index excludes the increasing price of gas at the pumps and food at the supermarket.
Thursday will unveil weaker economic indicators with no chance that there will be asudden drop in the unemployment report.
Friday takes triple witching, the expiration of index options and futures as well as future's contracts on step further. On this third Friday of March, stock index futures, stock index options, stock options, and single stock futures (SSF) all expire. This usually is marked by increased volatility.
If the week is expected to end on an up note, it will need a good deal of convincing as more and more investors eyeball the long term benefit of dividend earning stocks and Treasury Inflation Protected Securities. Both of these defensive investments, if taken to heart, will slow the possibility of further growth this year.
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