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St. Patrick Smiles on the Market!

Posted by Larry Doyle on March 17, 2009 5:34 PM |

When trading bonds, I used a rule that Tuesday’s price action often reversed Monday’s. While that rule of trading was strictly a quirk based upon years of experience, I found it happen so regularly that I never discounted it. 

Supported by a surprisingly strong housing starts number (+22% to 583K) and a relatively mild increase in PPI (producer price index) of .1%, the market opened relatively flat today but firmed all day right into the close. The major stock market averages closed up 2.5%-4%!!

I would make the following comments. The housing number has been down so long that a bounce of that magnitude is both surprising, but likely unsustainable. For reference purposes, housing starts a few years ago ran at north of 2 million annually. Thus, despite a 22% bounce we are still at very low levels. The PPI is contained but without the volatile food and energy components it registered a .2 increase or a 2.4% annual rate. That level is not problematic but certainly not indicative of a bout of deflation that some have feared.

Both economic statistics were not problematic and thus reason enough for optimism and investors came back into the market. 

In the midst of the rally in the stock market, various sectors of the bond market sold off marginally. The safe havens of gold and the U.S. dollar also gave a little bit of ground. Oil ran back up towards $48/barrel so do not be surprised if you see gas prices move back up at the pump.

What industries performed best? The REITs, which I have discussed as being vulnerable to further selloff given their commercial real estate exposure, did perform today and ended the day up 8-10%. What did not perform? Industries such as aluminum, iron, and steel traded down 6-8% today on the heels of Alcoa’s dividend cut and indication of raising more equity capital. What do I read into that news? The industrial base within our economy does not appear poised to rebound anytime soon. st-patricks-day4

In summary, St. Patrick wanted to make sure that investors were in a good mood and would stop in for “just one” on the way home!!



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