Monday, August 2, 2010

Dow starts August surging 208

Stocks shot out of the gate & never looked back. They stretched early gains & closed near the highs of the day. Dow rose 208, advancers over decliners 5-1 (but slightly lower than in the AM) & NAZ was up 40. Banks also had an excellent day, with a 5+ point advance (more than 5 is considered very big) in the Financial Index.


Value203.00One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change5.08 (2.6%)

In this up market, MLPs continued strong. The index rose 3½ to the 332s, needing just an additional 10+ to reach a new record. Enbridge Energy (EEP) gained 1.76 to 46, only modest damage since the oil pipeline story broke last week. The Dow Jones REIT Index shot up 7 (an usually large daily gain) to 213, taking it nearer its yearly highs at 219. Junk bond funds were up 1+%. The VIX fell another 1½ to 22, lowest since the start of the market decline in early May. The yield on the 10 year Treasury bond rose 5½ basis points to 2.96%. The € remains very strong, near $1.32, on all the optimism coming out of Europe.

Alerian MLP Index --- YTD

Dow Jones REIT Index --- YTD


10-Year Treasury Yld Index --- YTD

Oil crashed thru the 80 ceiling, very bullish for its bulls but also a negative indicator for the economic recovery. The national average price for gas at the pump is $2.74 & will be headed higher. Gold is sloshing around, not much to do today for its bulls. Gold is considered to be in a tight trading range where it could remain for a few weeks.

CLU10.NYM..Crude Oil Sep 10..81.41 ..Up 2.46
GCQ10.CMX..Gold Aug 10..1,182.60 ..Up 0.90

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Bernanke said rising wages will probably spur spending

Photo: Bloomberg

Ben Bernanke, the Federal Reserve chairman, said that the US economy faces a long & bumpy ride ahead to overcome the deepest recession since the Great Depression, though the worst is over. He continued that the nation's economy is growing at a "moderate" pace, but has a "considerable way to go to achieve a full recovery." Persistent weakness in the housing & labor markets continue to weigh on the economy, the improvement in private payrolls is still not robust enough to reduce the unemployment rate & restore the 8½M jobs lost over 2008-9, he added. But on the bright side, an increase in spending by households & business should help sustain growth, in upcoming quarters. He also focused on the fact that the downturn has taken a severe toll on state & local budgets, forcing them to make significant cuts that are in part to blame for the sluggishness of the national recovery. With steep drops in tax revenue & ballooning Medicaid costs, states have had to lay off & furlough employees, trim capital spending, "With economic conditions far from normal, state budgets will probably remain under substantial pressure for a while, leaving governors and legislatures a difficult juggling act as they try to maintain essential services while meeting their budgetary obligations," Bernanke said.

Bernanke Says U.S. Consumer Spending to Accelerate

I wrote an article for today about McDonald's (MCD). The stock had a rough period at the start of the decade, but has regained its business footing & returned to its growing ways. At $70, the stock has more than doubled in 10 years with a yield of 3+%.

McDonald's --- 2 years

Risk tolerance has returned as evidenced by the strong performance of junk bonds although their yields are not exceptionally high. Following a good month, they had another excellent day. Dow blasted thru the 10½K ceiling like it wants to go much higher. Tomorrow it will be tested when auto sales are released & the Jul jobs report on Fri is already getting a fair amount of attention.

Dow Jones Industrials --- YTD

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