Copper continues to crumble amid China growth worries and a weak Yuan. Strong global growth is key to keep stocks at records.» Read More
What's up with banks? Since Monday's close, I have noted that banks have been outperforming...a trend that is now stretching into four days, particularly the largest institutions.
Banks this week:
Likely causes for the rally...
Another explanation is that there is still a lot of cash on the sidelines, especially in Europe. One trader noted to me that In Europe, we saw two huge secondary placements last week at almost no discount to market. Gjensidige sold its 20% position ($550 million) to the market at a 3% discount and RBS sold its 28% position in Direct Line ($1.6B) at no discount. I know some Europeans are flush with cash due to the Verizon/Vodafone deal but to place $2B in 30 minutes at little discount tells me there is a lot of cash that still needs to be put to work.
And why is Bank of America a leader? Several traders told me the worst is behind them on the litigation front and there is a belief the core banking business is slowly improving.
Stocks are at new highs, but where are the bargains? Amid a fairly lackluster trading day on Wednesday, we saw big financials mount an impressive rally.
With the S&P 500 up 0.7 percent this week, some of the major banks have really separated from the pack:
BofA up 4.4 percent
Morgan Stanley up 3.8 percent
Goldman Sachs up 3.3 percent
JPMorgan up 2.4 percent
This is important, because banks have been considered relative bargains, at least until this week. Once more, investors seem to be buying into banks— and discounting the slower macroeconomic story we have seen so far in 2014.
Strange day...breadth negative all day, all major indices moving in a very narrow range, volume lighter.
There is some selective strength: The most positive thing today is financials. The Financials ETF (XLF) is close to its January highs...and Bank of America (BAC) has put in a monster move, up three percent today, and five percent over the past two days.
The Fed Beige Book complained of severe weather impact throughout the U.S. economy. So essentially ALL data on February has been thrown out...none of it matters...ISM Services weak today, ADP not great either...but it doesn't matter. It's weather.
And this is what will happen on Friday with the Jobs report: They will throw it out if it's bad because of weather, but push markets up if it's good.
"You can't have 'one off' explanations month after month after month, quarter after quarter," one hedge-fund trader said to me today. "Monday was a sharp day down, Tuesday was a sharp move up, today we went sideways and consolidated, looking for a catalyst to spur the next move."
So it doesn't matter (the Feb data) unlessand until, the March data doesn't improve precipitously.
Solar equipment producer Chaori Solar said it may not be able to make an 89.8 million yuan ($14.6 million) interest payment that is due on March 7.
This is getting a lot of attention because it would be the first Chinese default of an onshore bond. The country's solar industry is heavily subsidized by the government and has enormous overcapacity. Prices for photo-voltaic cells have dropped dramatically.
But this goes beyond the renewable energy sector. There is enormous overcapacity in many Chinese industries, such as steel and coal. Chinese companies have issued enormous amounts of debt in the past several years, so a default will definitely raise the issue of credit risk.
A classic relief rally...7-to-1 advancing-to-declining stocks. Cyclicals advancing along with defensive names. Eight of the 10 S&P sectors up more than one percent. Volatility Index (VIX) reverses and drops from 16 to 14 and change, back to its recent trading range.
When the market moves up this quickly...particularly when it hits new highs...it forces people to act and get in.
There is heavy volume in the Russell 2000 ETF (IWM)...midway through the day, it has already done a full day's volume, and that is significant. This is a huge hedging vehicle for active traders.
What's up? It was always unclear what the scope of the military action in the Ukraine would be. It still is, but an outright invasion of the whole country--with tanks rolling into Kiev--now looks very unlikely. A lot of traders assumed the tension in the Ukraine would go on longer. It still isn't over, but there is certainly a sense that there has been a de-escalation of sorts.
Why? As I pointed out in my TraderTalk note this morning, Putin is likely reacting to economic issues over geopolitical issues. "The economic burden that it can impose on Russia is tremendous," one international trader said to me. "Putin's a smart guy, and he knows his fragile government cannot withstand that economic hit (which gives rise to civil unrest, and often times, revolution) and so he will come quickly to the table."
If this story stays relatively quiet, we will quickly shift to Friday's February Jobs report. Everyone knows the survey week was a bad weather week, so a poor payroll number will likely be discarded quickly, even though it would be the third one in a row.
A stronger report would encourage risk-on.
The market is now up more than seven percent since the February 5th low.
So Vladimir Putin says the "military exercises" are done. He says he does not want to annex the Crimea, and military actions are a "last resort." That has helped send Wall Street shooting higher at the opening bell.
The papers are full of advice to President Obama on what needs to be done, including headlines such as "Bold Energy Policy Best Response to Russia in Ukraine," and "The Economic Levers That Might Stop Putin."
No one knows what will ultimately deter him, but he is not presiding over a healthy economy and that is likely the major factor.
Ukraine: Muted market reaction, so far. At one point, the major indices were putting up their worst showing in a month...which is to say, it was not a disaster. At its worse, the S&P 500 was down 1.3 percent at about noon ET.
Two questions being asked:
What's the fallout? Right now, it's modest. The CBOE Volatility Index (VIX) is at the highest level in a month, but at 16 that is hardly a level to generate great worries, and the futures contracts out in April and May are barely moving. Right now, markets are saying this is a short-term event. That could change.
Grain prices bear watching, particularly if this continues. Bad weather has already taken prices up, and not just in the U.S. Wheat, oats and corn are up, but grain prices have been rising independently of the Ukraine for the last month: There has been poor weather in Brazil. Grain and oil-seed prices rose five percent and 10 percent, respectively in February, according to Janney Capital Markets. Soybean prices were up four percent on poor weather in Brazil, which of course benefited U.S. exporters.
Because of this, commodity ETFs are seeing HUGE inflows.
The biggest one is the PowerShares DB Agriculture Fund (DBA), which is seeing volume five times normal today…and volume was big last week as well. This holds futures contracts on all the big commodities…sugar, cattle, corn, soybeans, coffee and wheat.
It's up 14 percent in the last six weeks…much of the gain is due to Ukraine concerns, but also because of poor weather in the U.S. and Brazil that has driven up grain and oil-seed and soybean prices.
The concern is that food costs may be rising for a variety of reasons.
Another ETF…the Market Vectors Agribusiness ETF (MOO) is also up in the last month…it's a basket of companies that derive the majority of their revenues from agriculture.
Elsewhere: Is the underlying economy stronger than we think? ISM manufacturing for February was above expectations at 53.2 vs. 51.3 in January. New orders and the backlog of orders were both well above January. Production was down, to 48.2 vs. 54.8, and there you can see the impact of the weather.
But--this is the main point--while weather was prominently mentioned as an issue, it was surprising how many positive comments were highlighted by participants. Here are a few:
Let's see if that translates into real jobs. The jobs reading remained at 52.3, unchanged from the prior month.
What does turmoil in Ukraine mean for markets? It depends on how long it takes to resolve.
Right now, it has taken risk off the table, sending Wall Street reeling at the opening bell. It's likely to be a further headwind for the global economic recovery. The U.S. has some $38 billion in trade with the Russians that is now in at least some peril. Throw in the rough winter, and the Ukraine is another data point that weakens global growth.
Ukraine may be far away, but it is clearly influencing global markets. Most European bourses are down two to three percent—this is after very encouraging manufacturing reports for February. Grains are up, with wheat up 4.6 percent, oats and corn also up two to three percent. Gold at a four-month high, while oil is up two percent.
The Russian stock market is down 12 percent today, but that is not going to deter President Vladimir Putin.
Traders are about to enter initial public offering offering (IPO) heaven. Over the next two months, dozens of technology companies are set to go public.
Thus far this year, there has only been one tech IPO. Market watchers who saw a tsunami of IPOs in cloud computing and software in 2013 have been scratching their heads, wondering if there will be more.
There will be. Beginning in March, an avalanche of tech IPOs will be upon us.
Stock market late morning:
Europe closes mixed, Russia down two percent, Germany down 0.6%, on concerns over Ukraine. The problem: A bailout will be needed to keep them in Western Europe but it will be very hard to find the money.
S&P 500 turns positive after mostly down morning. Stocks have moved into positive territory as Fed Chairman Janet Yellen has been testifying, market takeaway has been Yellen has emphasized role of weather in the weak data, though data is inconclusive, and has continued to emphasize her dissatisfaction with unemployment and income inequality. Stocks seem to like the idea that she is concerned and engaged in the economy and that the Fed will be there to lend a hand.
Other notable gainers:
Rate-sensitive stocks holding up as interest rates decline: Emerging markets, telecoms and consumer staples.
Prominent money managers are warning of a bubble in some technology stocks and recommend avoiding emerging markets.
Turney Duff chronicled his spectacular rise and fall on Wall Street in "The Buy Side." Here, he offers 10 tips for those young traders climbing the Wall Street ladder now.
The leaders of the Senate Banking Committee on Tuesday announced an agreement on legislation to wind down government-owned mortgage financiers Fannie Mae and Freddie Mac, jump-starting a long-standing debate that could still take years to resolve.