Daily State of the Markets  Monday Morning – June 29, 2009 To listen to an Audio Version of the report, click on the Play button below:

Good morning. Friday’s session was largely forgettable as traders simply hung around to wait for the Russell rebalancing, which is where all the action was in the last half hour. After Thursday’s big window-dressing rally gave the bulls some breathing room, there wasn’t much impetus to move prices higher and yet the bears couldn’t really find a reason to be either on Friday.

At first blush, it looked like the Personal Income and Spending report would provide the bulls with some ammunition to keep the T+3 rally moving on up. Personal incomes rose by +1.4% which was well above the consensus estimates for an increase of just +0.3%. And it was encouraging that disposable income jumped up +1.6% in May. However, upon further review, the numbers were not quite so upbeat.

It turns out that the entire gain in personal incomes came from government benefit programs such as the one-time $250 payment to social security recipients, which were part of the fiscal stimulus bill. So, if you exclude the government handouts, personal income was actually down -0.1% and disposable income saw a much more modest gain of +0.2%. So, in the end, what looked like good news turned out to be a non-event as far as the stock market was concerned.

Speaking of good news, the national savings rate soared in May as people took the extra money from their paychecks and plunked it in the bank. The annualized savings rate jumped 1.3% to 6.9%, which is not only above the historical average of 6.6% but also the highest level since 1993. But, oops – did I say “good news?” While more savings is good for the country from a macro standpoint, it actually isn’t so hot for the stock market as savings doesn’t do much to boost the economy or company earnings.

However, apparently having a little more cash on hand is making consumers feel a little better as the Reuters/University of Michigan Consumer Sentiment Index popped up 2.1 points in June to a reading of 70.8. The number was above the expectations for an unchanged reading and the biggest increase since February of last year. The expectations component accounted for all of the improvement in the index as consumers are obviously feeling more optimistic about the future.

Looking at the charts, Friday’s action didn’t really accomplish much. The Dow and S&P are currently bumping into some resistance at 8550 and 920(ish) and depending on one’s view are either stuck in the middle of the new expanded version of the trading range or forming the right shoulder of a head-and-shoulders top. So, if the bears were to get something going to the downside and break through the lower lines in the sand, they could be in business for a while as the formation would project a move down to around 810 on the S&P.

Turning to this morning, we don’t have any major economic data to review before the bell and things are fairly quiet on the news front. However, the Madoff sentencing is likely to draw some attention today.

Running through the rest of the pre-game indicators, the major overseas markets are mixed by region with Asia lower and Europe a bit higher. Crude futures are moving up with the latest quote showing oil trading higher by $0.62 to $69.78. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.50%, while the yield on the 3-month T-Bill is trading at 0.20%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 15 points; the S&P’s are up about 2 points, while the NASDAQ looks to be about 5 points above fair value at the moment.

Remember to think positive and until next time, “may the bulls be with you!”

David D. Moenning
Founder TopStockPortfolios.com

 

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