Markets digest yesterday's gains

Stocks began the day higher, but selling has eliminated those gains.  Dow is up 2, decliners over advancers 5-2 &  NAZ is down 1.  The Financial Index fell 1+ to the 205s after yesterday's big day.  The MLP index was down another 1+ to 401 & the REIT index was off 1 to 250.  Junk bond funds edged lower & Treasuries sold off badly, taking the yield on the 10 year Treasury to its highest in 4 months.  Oil was flat but gold sank as risk averse investors responded to the rising stock markets by selling gold.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.081%
U.S. 2-year	0.374%
U.S. 10-year	2.235%

CLJ12.NYM

.....Crude Oil Apr 12

...106.61

.... 0.10

(0.1%)

GCH12.CMX

...Gold Mar 12

.......1,647.60

... 46.10

(2.7%)

Get the latest daily market update below:

Photo:   Bloomberg

The current account deficit for the US widened more than forecast in Q4 to $124B, the biggest in 3 years.  The gap grew 15% from a revised $107B shortfall in Q3 that was smaller than initially estimated according to the Commerce Dept.  Imports may keep rising as an improving job market underpins consumer spending & businesses replace outdated equipment.  The balance of payments deficit is also a reminder of US dependence on foreign investors for funding.  The gap for all of 2011 widened to $473B, or 3.1% of GDP, from $471B a year earlier.  The gap represented 3.2% of GDP in Q4, compared with 2.8% in Q3.  Rising oil costs are contributing to the shortfall.  Crude oil averaged $94 last qtr, up from $89 in Q3.  More recent figures indicate the current-account balance may widen in Q1.  The trade gap grew to $52.6B in Jan, the biggest deficit since Oct 2008 (just after the Lehman collapse), from $50.4B in Dec.  Imports rose to a record in Jan, as did exports of autos & capital goods.  Imports are goods purchased in the US but not made here.

Current-Account Deficit in U.S. Widens to $124.1 Billion

Citigroup
Photo:   Bloomberg

Citigroup, the lender that took the most gov aid, will try again to win approval for its capital plan after failing to meet minimum standards in US stress tests.  The Federal Reserve (FED) objected to Citi’s plan, which may have included a request for a higher div, prompting the bank to say it will submit a revised version later this year.  SunTrust (STI), Ally Financial & MetLife (MET) also fell short in the FEDs test.  The results are a blow to Citi which is ready to return capital to shareholders.  Capital plans submitted for the tests typically involve requests for higher divs & share buybacks.  The tests may also set back Ally, the Detroit-based auto & home lender, which had planned an IPO to repay its bailout.  The FED is testing to see how the capital of US banks might hold up thru a deep recession & a 2nd housing crisis.  Ciit was off $1.07, STI was up 76¢ & MET fell $1.76.

Citigroup, SunTrust Banks Capital Plans Fail Fed Stress Tests

Citigroup Inc. (C)

• 

Photo:   Yahoo

Zynga filed for a secondary stock offering of up to $400M, paving the way for some early investors to exit their holdings.  Shares have risen 33% since the IPO.  ZNGA is waiving the lock-up arrangement the company had with some of its existing stockholders to facilitate the offering (due to expire in May).  After going public late last year some stockholders are cashing in on the stock rise.  The stock fell 6¢ to $13.44.

Zynga Plans $400 Million Share Sale in Secondary Offering

Zynga Inc. (ZNGA)

The markets need time to catch their breath.  Dow is back to where it was 4 years ago, quite a run in the last 3 years.  The rise in the last 2 days surprised me because of a lack of supporting stories.  The US economy is doing well despite gas prices nearing their highs 4 years ago.  MLPs have been market leaders during this rally but have slipped back in the last month.  The spike up for the Dow puts it on a new plateau & the bulls are looking to take it higher.

Dow Industrials

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Markets have their best day in 2 months

Encouraging data on US retail sales & increased hopes for Europe to solve debt problems brought out buyers in droves. Markets rose throughout the day, closing at the highs. Dow shot up 274 taking it back over 10K, advancers ahead of decliners 5-1 & NAZ jumped 65. Banks & energy led the way. Bulls for bank stocks will point to the Financial Index "holding" at its 185 lows (shown in the chart below).


S&P 500 FINANCIALS INDEX

Value	191.24
Change	8.12 (4.4%)

The Alerian MLP Index had a great day (up more than 5), gaining 7 to almost 315 & approaching its 319 highs before the market collapsed in May. Charts for the last 2 months are shown to give a better idea of how these groups have performed during a rough time for the markets. The Dow Jones REIT Index shot up an amazing 9 to the 189s. Junk bond funds generally had only minimal gains. The VIX dropped 2½ to 27, a sign of easing market fears. Treasuries sold off, but not that badly. The yield on the 10-year Treasury bond rose 5 basis points to 2.98%, remaining in a low region.


Alerian MLP Index -- 2 months




Dow Jones REIT Index -- 2 months




VIX -- 2 months




10-Year Treasury Yld Index -- 2 months





Oil had another good day (following the stock markets) but is still in its 70-75 trading zone. Gold finally found a few buyers but needs more strength to get back over the important 1200 level. Gold has been struggling on reports that China would stop buying gold & that central banks swapped gold for cash. Traders have been selling gold in favor of stocks.

CLQ10.NYM

..Crude Oil Aug 10

..74.18

.. 2.20 ......(3.1%)

GCN10.CMX

..Gold Jul 10

..1,198.60

.. 3.80 ......(0.3%)

Gold Super Cycle!!
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Stress tests on European banks may need to mark down the value of Greek gov debt by 16% to pass stress tests. Regulators are working out how much detail to reveal about the health checks. The Committee of European Banking Supervisors (CEBS) was expected to outline its methodology for a stress test that simulates the impact of a severe economic shock, but that could be delayed until around Jul 23. Whether to apply a "haircut" on the value of debt in countries like Greece, Portugal & Spain is one of the sticking points facing regulators. Optimism about these tests has brought more confidence about Europe solving its debt problems & has seen the € rise to $1.26½ (off its lows under $1.20).

• Europe to mark down Greek debt in bank tests- Reuters

It's difficult to point to significant news driving today's rally other than the markets were greatly oversold & gold sellers have been putting their money in stocks. But difficulties dribble on. The fate of tax cuts, due to expire in 5 months, is uncertain & becoming an important overhang for stocks. Congress is trying to deal with millions whose extended unemployment benefits are ending. The biggest problem with extending benefits again is it adds to an already massive gov deficit. After today's big rally, Dow is still lumbering around its lows for the last 8 months even though it's back above 10K again. Optimism is running high on Q2 earnings, the first are due next week.

Dow Jones Industrials -- 2 months

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Dow continues down YTD

Dow tried & tried but couldn't gain enough ground to go over its starting point for 2009. Dow slipped modestly at the close, reducing the gain to 19, advancers over decliners 3-2 & NAZ was up 8 (with a nice YTD gain).

Banks continued to digest recent gains, easing back today. They have been the market leader, maybe this pause is sending a message. The index is at the high end of a 20 point trading range it has been in for almost 2 months.

S&P 500 FINANCIALS INDEX

Value 163.32

Change -1.99

% Change -1.2%

The Alerian MLP Index shot up again, 2¼ to the 233s. REITs continued weak as were junk bond funds. Oil was up pennies, pushing for 69. The 10-year Treasury bond rose, reducing it's yield 7 basis points to 3.64%. The chart shows the yield has been flattish, just under the 3¾% peak recorded last week.


10-Year Treasury Yield Index - 2 days





May autos sales sort of bottomed out, but at a dreary level. GM sales dropped 30% while Ford (F) dropped 24% & Toyota (TM) sales fell 40%. The rates of declines are lower then they have been, but they are also off last year's low bases. Recovery remains in the future. F rose 5% & TM fell 73¢.

• GM's May sales down 30 pct. but improving- AP

Bank of America (BAC) has raised almost all of the $34B required following the stress tests, stock up 20¢.

•Bank of America Raises $33 Billion, Will `Comfortably' Meet Capital Target


Dow spent the better part of 2 days hovering just under 8776, starting point for 2009. That ceiling held. Dow barely went into the black for a few mins early in the day, then retreated. Tomorrow it will try again to crack the ceiling.

Dow Jones Industrials --- 2 days




1 YEAR

Stocks fall on UK credit worries

Stock have been weak all morning. Dow fell 139, decliners over advancers 4-1 & NAZ is down 34. But banks are not leading the decline, they're getting a break. As the index shows, banks are mixed with little changes.

S&P 500 FINANCIALS INDEX

Value 157.98

Change 0.52

% Change 0.3%

The Alerian MLP index dropped 3 to 216, probably from lower oil prices. The REIT index dropped only 1 while junk bond funds were weak. The VIX, volatility index, jumped 2, pushing for 31. It had been dropping all year, to 27, on easing fears.


VIX ---- 1 week




Oil backed off the 62 ceiling as markets are trying to assess how badly higher gas prices will affect demand over the first holiday weekend. Gas at the pump was 2.36 yesterday, up 30¢ in the last month.

CLN09.NYM

...Crude Oil Jul 09

...60.28

... 1.76 .......(2.8%)

The number of new jobless claims dropped slightly last week after increasing due to auto layoffs, continuing jobless claims approached 7M. The labor market likely will remain weak into 2010. Initial claims for jobless benefits fell to 631K, down 10K from the previous week. More auto shutdowns will be lifting claims in the coming months.

•Jobless Claims in U.S. Are Higher Than Estimated; Benefit Rolls at Record


Standard & Poor's revised the outlook for Great Britain's credit rating to negative from stable. The rating agency reaffirmed the country's long-term credit rating at "AAA" and its short-term rating at "A-1+," but said the outlook had deteriorated because of massive borrowing to deal with the recession & the banking crisis. The FTSE share index fell more than 120 points (2.7%). A lower credit rating would require the government to pay higher interest rates for borrowings. S&P said 37% of its negative outlooks were followed by a downgrade. Such concern raises doubts about the ability of the UK to raise record amounts of money by issuing more debt

•U.K. May Lose AAA Rating at S&P as Government Debt Approaches 100% of GDP


The Treasury Department will lend GMAC $7B, making GMAC a sort of federal entity which offers low-interest loans to buyers of GM & Chrysler cars. This follows GMAC failing the "stress test" a few weeks ago. The Treasury mandated that GMAC must raise $11½B within 6 months (after receiving $5B from TARP in Dec). In exchange for that funding, the gov received 5M GMAC shares, giving the Treasury more control over GMAC. This includes telling GMAC that it must extend financing services to bankrupt Chrysler LLC. The big picture is the gov is telling this business what to do. Expanded authority may be used at other companies where the gov is also a major shareholder. The banking arm of GMAC changed its name to Ally Bank last week, in an effort to repair its tarnished image & attract customers.

•GMAC Said to Get More Than $7 Billion in Aid to Fund Chrysler, GM Lending

After the Dow cracked the 8K ceiling, it's still having a difficult time trying to make headway.

Dow Jones Industrials --- 1 month

Markets are wandering again

Dow started the day with a 60 point gain, but slipped back to near beak even. Dow is essentially even, decliners were over advancers 3-2 & NAZ is down a big 18. Banks are weak for a 2nd day:

S&P 500 FINANCIALS INDEX

Value 161.39

Change -2.46

% Change -1.5%

In this quiet market, MLPs, REITs & junk bond funds slipped mildly. Even the hot MLP sector needs a little time for rest:


Alerian MLP Index ---- 2 months





Oil prices rose above 59 a barrel, encouraged by hopes that global recessions may have bottomed. However, there is a continuing lack of demand as U.S. crude stocks are near 19-year highs & expected to climb further. Oil prices were below 35 in Feb on worries about the pace of economic deterioration. The eventual recovery has been dramatic, as with stock markets.

CLM09.NYM

Crude Oil Jun 09

59.08

... 0.58 .......(1.0%)

• Oil above $59 on signs US recession is easing- AP

Home prices fell again in Q1 while first-time buyers keep looking for bargains. The median sales prices of existing homes declined in 134 of 152 metropolitan areas compared with last year. Prices rose in only 18 cities. Sales of foreclosures & distressed properties made up about half of the market. Sales in Nevada, California & Arizona where up sharply where buyers have been able to purchase foreclosures at deep discounts. The median sales price nationwide was $170K, down 13.8% from the prior year. The $8K tax credit for first-time buyers, included in the economic stimulus package, is hoped to boost sales.

•Home Prices in U.S. Fall 14% as Banks Sell Foreclosed Properties, NAR Says



Bank of America (BAC) sold $7.3B of its stake in China Construction Bank after the gov stress test found BAC needed to boost capital by $34B. Buyers were China investment groups. The sale reduced BAC's stake in the world's second-largest bank (by market value) to roughly 10%. BAC fell 42¢. While expected this is viewed as a sign of a weakened bank.

Bank of America Said to Sell $7.3 Billion Bank Stake


Nissan Motor, Japan's No. 3 automaker, reported a $2.4B annual loss, its first yearly loss in a decade. The loss for the current fiscal is after it slashed jobs & production costs. They said "The (economic) crisis is ongoing and market conditions are still volatile." The loss was blamed on -- the U.S. financial crisis, the global slowdown & the strong yen. The fiscal Q4 loss (just ended) was larger than the annual loss because the automaker turned a profit in earlier quarters. Nissan projects a smaller loss of $1.7B for the fiscal current year (ending Mar 2010).

Nissan to Narrow Loss as Job Cuts Offset Demand Slump


Economic news continues dismal. However conditions look to be bottoming out, the big question is how long it will take for markets to begin growing again.

Stress test rally

Dow jumped 80, advancers over decliners better than 3-1 but NAZ was only even.

In the last 2 months, the financial index has doubled from a severely depressed level of 81:

S&P 500 FINANCIALS INDEX

Value 167.24

Change 4.90

% Change 3.0%

In Apr, employers cut 539K jobs, the fewest in six months. These figures were helped by increased federal hiring of temporary workers for the 2010 Census. The Apr number wasn't as deep as the 620K job cuts forecasted by economists. Since the recession began in Dec 2007, the economy has lost 5.7M jobs. The deepest job cuts, 741K, came in Jan, the most since 1949. The unemployment rate climbed to 8.9%, the highest in 25 years, versus 8.5% in Mar.

Public payrolls rose 72K last month after falling 6K in the prior month, aided by the Census Bureau which will hire more than 1.4M over the next year. The big problem with the numbers is that factory payrolls fell 149K after decreasing 167K Mar.

•U.S. Loses 539,000 Jobs, Fewer Than Forecast, in Sign Economy Stabilizing


There are a bunch of post stress test stories. Wells Fargo (WFC) & Morgan Stanley (MS) will have large stock sales to boost capital. Bank of America (BAC) faces the greatest challenge, needing to raise $34B. BAC will raise capital through asset sales, earnings in the upcoming quarters and raising capital from private investors. The problem is that selling stock & asset sales used to be considered signs of weakness & growing capital with earnings looks to be of little help in the short run. There's also Fannie Mae, forgotten about with the emphasis on commercial bank problems. They need more gov money as they face a grave future.

• Banks' 'stress test' lift cloud of uncertainty- AP
• Wells Fargo prices stock offering at $7.5 billion- AP
• Morgan Stanley offers $3.5 billion in stock- AP
• Fannie Mae seeks $19B in US aid after 1Q loss- AP
• BofA CEO Lewis lays out plans for bank's future- AP

.name.....price......% change..................volume

BAC		13.6801	0.1701	1.26%	263,664,760
MS		25.98	1.16	4.27%	64,175,370
WFC		24.8525	0.0925	0.37%	183,595,309

Strong demand for the high yield sector continues while the VIX, volatility index, dropped 1 to the 32s, another 2009 low.


Alerian MLP Index ---- 2 weeks




Dow Jones REIT Index --- 2 weeks





Barclay's Hi Yield Bond ETF - 2 weeks




Oils are participating in the rally.

CLM09.NYM

...Crude Oil Jun 09

...57.39

... 0.68 .......(1.2%)

The Federal Reserve gets high marks for leaking enough about stress tests results ahead of time to ease fears before the official report was given last night. But the economy still faces a grim short term future.

Stocks rise on strong economic news

Markets are not phased by the looming negative findings on stress tests for banks or Chrysler (& possible GM) bankruptcy. Dow is up 168, advancers 4-1 ahead of decliners & NAZ is 27 higher. The FINANCIALS INDEX is up today but has been flat, trading in the 140s since Apr 9.

S&P 500 FINANCIALS INDEX

Value 148.31

Change 5.35

% Change 3.7%

The high yield sector is strong along with the rest of the market. The Alerian MLP Index is up 2.05, pushing to reach 215 (another 2009 high). REITs & junk bond funds are up while the VIX slipped pennies, staying near 35 (the low for 2009).


Alerian MLP Index --- YTD





Oil rose to a 5 week high on the bullish sentiment in the stock markets.

CLM09.NYM

...Crude Oil Jun 09

...53.73

... 0.53 .......(1.0%)

Construction had a good month in Mar after 5 consecutive down months. Construction spending rose 0.5% vs a drop of 1.5% forecasted by economists. Lower mortgage rates helped, but there is a question about how long increases will last given the state of the economy.

•U.S. Construction Spending Unexpectedly Rises for First Time in Six Months


The index of pending home sales gained 3.2% to 84.6 in Mar, beating analysts' flat expectations. In addition they were 1.1% higher than last year, the first time that has happened since Dec. Homebuyers are taking advantage of bargain prices, low interest rates & a tax credit for first-time buyers. However, home prices are expected to keep falling for at least another year. Many homes are tied up in the foreclosure process, not yet ready for sale. Mounting job losses may also keep buyers from signing contracts. Realtors estimate about half of existing home sales are now foreclosures & other must-sell transactions. But they are counting on the $8K tax credit for first-time homebuyers as their best hope for boosting sagging sales.

Pending US Home Sales Up 3.2 Percent in March- AP


Obama wants to tax multi nationals viewed for using their overseas subsidiaries to "hide" overseas profits. The legislation will affect major companies such as Procter & Gamble & Caterpillar. Individuals will also be challenged more by the IRS about hiding assets in offshore accounts. This is part of the administration strategy to meddle more in business affairs. So far, the markets are ignoring or deferring judgement on this philosophy.

•Obama Seeks to End Tax-Haven Strategies That Save Companies $190 Billion


Dow reached 8.4K as it is trying to establish 8K as a floor once again. For the time being, bulls are in charge! The link below gives one assessment of how the stress tests may play out:

• Stress test 101: How will the banks do?- CNNMoney.com