Markets pause

Stocks are taking a breather after gains in the last few days. The 2 week chart shows Dow going from the low end of its trading range to a new high, about 600 points :


Dow Jones Industrials --- 2 weeks





Today, Dow is down 38, decliners over advancers 2-1 & NAZ dropped a bigger 24. The S&P 500 slipped below 900, bringing it back into the red YTD. High yielders (with their bigger risks) also slipped. The Alerian MLP Index is down 1½, the REIT index is down 4 & junk bond funds are weak. Oil, in sympathy, pulled back from its 5 month recent highs by 50¢.

Yesterday banks had their biggest one day gain in the last month, but nervousness about the stress tests brought profit taking today. The thinking behind yesterday's rally was that the need for more capital will be less painful than prior expectations.

S&P 500 FINANCIALS INDEX

Value 155.10

Change -2.34

% Change -1.5%

Federal Reserve Chairman Ben Bernanke told Congress that the economy should start growing again later in 2009. He also warned that even after a recovery gets under way, economic activity is likely to be subpar. Businesses will remain cautious about hiring, driving up the nation's unemployment rate, causing "further sizable job losses." The recession, which began 17 months ago, already has cost the economy 5.1M jobs. But he added, "We continue to expect economic activity to bottom out, then to turn up later this year."

Recent data suggests the recession is loosening its firm grip on the economy, as the pace of contraction may be slowing. The housing market has shown signs of bottoming. He added that the FED does not intend to retreat from its policy of keeping the main interest rate close to zero & boosting credit through emergency-loan programs & asset purchases.

•Bernanke Warns `Relapse' in Banking System Would Stall Economic Recovery


More thoughts about stress tests. It is expected that Citigroup (C) & Bank of America (BAC), both Dow stocks, are among 10 banks which may be told they need more capital.

•Fed Stress Test Results May Show 10 Banks Need Capital to Withstand Slump


There have been enormous gains from the market lows just 2 months ago. I selected 2 for comparison. 3M (MMM) is a Dow stock & Dividend Aristocrat which has moved up about 40%. Not bad. Masco (MAS), a former Dividend Aristocrat which had a 50 year streak of higher divs come to an end this year, is up 150%. Regular stocks did well while risky stocks had phenomenal gains. The disparity between the 2 highlights an increased appetite for risk. That's worrisome in the face of more months with dreary economic data.


3M ---- 3 months




Masco ---- 3 months