Stocks shot ahead out of the gate on what was viewed as positive economic news.  Dow is up 179, advancers over decliners 7-1 & NAZ gained 43.  Banks led the way higher as the Financial Index recovered about ½ of its loss this week.

S&P 500 FINANCIALS INDEX

Value	194.89
Change	3.46 (1.8%)

The Alerian MLP Index rose 1 to 332 & the REIT index recouped 4 to 211 after its sharp fall this week.  Junk bond funds were mixed & the VIX, volatility Index, dropped a very big 2 to 21 on lower fears by investors.  The weaker dollar sent the € 1½ pennies higher to almost $1.35, a high since Apr.  When the stock market rallies, Treasuries sell off.  The yield on the 10 year Treasury bond rose 5 basis pints to 2.60%, remaining in very low territory.

Treasury yields

U.S. 3-month		0.15%
U.S. 2-year		0.43%
U.S. 10-year		2.60%

Alerian MLP Index   ---   2 weeks





Dow Jones REIT Index   ---   2 weeks





VIX Index   ---   2 weeks





10-Year Treasury Yield Index   ---   2 weeks




Strong stock bring higher oil prices, but gold also managed a modest gain as it goes for 1300.

CLX10.NYM...

Crude Oil Nov 10

...76.11

... 0.83

(1.10%)

GCU10.CMX

...Gold Sep 10

...1,296.50

... 2.20 (0.2%)

Gold Super Cycle Link! Click Here

Capital equipment orders rebounded in Aug, sending a hopeful sign on the economic recovery.  Bookings  climbed 4.1% after a 5.3% decline in Jul (smaller than previously estimated) according to the Commerce Dept. Total orders fell 1.3%, hurt by volatile demand for aircraft, bookings excluding transportation equipment rose more than forecast.  Projections were for total capital-goods orders to fall 1%.  Bookings excluding transportation equipment rose 2%, twice as much as the median forecast. I'm not sure this news deserves such big gains in stocks.

Demand for U.S. Capital Goods Rebounds as Spending Holds Up



Bookings for capital goods - 1 year





Bookings less aircraft - 1 year

Photo:  Bloomberg


Sales of new homes in Aug had their 2nd-worst month on record, indicating the housing market will remain a drag on the economy.  Last month's new home sales were unchanged from a month earlier at an annual sales pace of 288K according to the Commerce Dept.  The only time new home sales were slower was in May, when the sales pace was 282K, the worst pace on records dating back to 1963. Sales were down 29% from the same month last year.  The median sales price in Aug was $204K, down 1.2% from a year earlier & the lowest since Dec 2003.The number of unsold new homes on the market fell to 206K, the lowest in 42 years. At the current sales pace, it would take about 8.6 months to exhaust that supply.  Normally the building industry powers economic recoveries. Each new home built creates, on average, the equivalent of 3 jobs for a year & generates about $90K in taxes, according to the National Association of Home Builders.

New U.S. Home Sales Hold at Second-Lowest Level Ever



Home purchases - 1 year





Sales of existing homes - 1 year






It's hard to believe that mediocre economic news justifies such big gains in the stock markets.  The news was only "less bad" than feared.  There are no fundamental changes in the economic recovery.  Now Congress wants to flex its muscles, trying to force China to strengthen its currency.  That is a touchy issue which will probably do little good other than upset global trade (driving jobs out of China to less developed countries in Asia with even lower wages).  But Dow is charging ahead and wants to go over its May high, bringing it to 11K (very near the 11.2K high in last Apr).

Dow Jones Industrials   ---   2 weeks

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