Tuesday, August 23, 2011

Dow and Nasdaq each have triple digit gains

Dow soared 322, advancers over decliners 4-1 (could have been better all considered) & NAZ led the rally with a gain of 100 (4.3%). Banks joined in the rally, but the Financial Index did not lead despite an encouraging report on the health of US banks from the FDIC.

S&P 500 Financials Sector Index

Value	166.19
Change	5.22 (3.2%)

MLP had a substantial recovery after recent selling while the REIT index rose 5½ to the 317s. Junk bond funds rose 2% (good gain for them) & Treasuries pretty much marked time at their high levels with correspondingly low yields. Oil rose for a 2nd day amid speculation the Federal Reserve will bolster efforts to stimulate the economy. Gold dropped, taking a nasty tumble to the low 1800s, for the first time in 7 sessions after the rally drove it to a new record, above $1917.

Alerian MLP Index

Value	338.14
Change	9.67 (2.9%)

Treasury yields:

U.S. 3-month	0.000%
U.S. 2-year	0.213%
U.S. 10-year	2.137%

CLV11.NYM

...Crude Oil Oct 11...

85.94

...

1.52

(1.8%)

Click below for the latest market update:

The Treasury sold $35B of 2-year notes at a record low yield of 0.22%. Investors continue to seek safe haven securities as a refuge from financial market turmoil & a slowing economy. Yields on most Treasuries were near record lows amid speculation Ben Bernanke may signal on Aug 26 that policy makers are willing to take further measures to prevent the US economy from returning to recession. Yields on benchmark 10-year notes were little changed above 2.1% after dropping on Aug 18 to the historical low of 1.97%. Yields on 5&7-year notes fell that day to records of 0.79% & 1.31% respectively. The current 2-year note yield rose one basis point to 0.21%. Risk averse thoughts are still running strong.

Treasury Auctions Two-Year Notes at a Record Low Yield on Refuge Demand

The FDIC list of “problem” banks fell in Q2 for the first time in 5 years as bank income improved & costs tied to bad loans eased. The list of banks deemed at greater risk of collapse shrank by 23 to 865. The last time that happened was Q3 2006 before the credit crisis began. Net income rose 38% to $28.8B from a year earlier, the 8th consecutive quarterly improvement, boosted by a 7th straight drop in provisions for bad loans. “Banks have continued to make gradual but steady progress in recovering from the financial market turmoil and severe recession that unfolded from 2007 through 2009,” Martin Gruenberg, acting FDIC chairman, said. Lenders put aside 53% less money to cover bad loans, charge-offs dropped 42% & the $20.9B decline in charge-offs was the largest since the recovery in credit quality began. The deposit insurance fund was positive for the first time in 2 years. While loan balances increased, net operating revenue declined for a 2nd consecutive quarter, falling 1.8%, as banks struggled with the effects of a slowing economy & low yields on assets. The bottom line is that bank health is recovering from 3 years ago.

FDIC ‘Problem’ Banks Shrink, First Time Since ’06

Dow is back above the important 11K level although NAZ led the rally. Breadth while good could have been better, some stocks were left behind. Junk bonds (stocks with high yields) did well, a sign that speculative juices are starting to flow. The VIX in the chart below dropped 6 to the 36s but remains in elevated territory. Bets are being made than Bernanke will have more magic as he did last year when QE2 was announced. However this is a different world with different problems.

Volatility Index (^VIX)