Oil's move to a six-week low has been cheering the stock market, but the question is for how long?
Traders say they are watching oil prices (and corporate earnings) again as the big movers in Thursday's markets. Also expected are two key pieces of economic data -- existing home sales at 10 a.m. and weekly jobless claims at 8:30 a.m.
In Washington, New York Fed President Timothy Geithner and SEC Chairman Christopher Cox both appear before the House Finance Committee's hearing on the financial regulatory system and the financial services industry. This is the second hearing on the topic, which is being held in the aftermath of the rescue of Bear Stearns.
The Senate is expected to take on the House-approved housing bill, and that action will be key to the markets as it was Wednesday when the House considered it. The bill is expected to be approved some time this week. President Bush has promised not to veto the legislation which includes a wide ranging government assistance package for the mortgage markets, as well as a plan to help back stop mortgage giants Fannie Mae and Freddie Mac .
Microsoft will be a focus in early trading after the resignation of Kevin Johnson, long considered a contender for the top job at the company. Microsoft also holds a previously scheduled analyst day Thursday.
Oil prices continued its slide Wednesday, giving stocks room to gain. Financial shares were up another 1.9 percent, but the best performers were telecom services, up 3.35 percent. Consumer discretionary stocks were up 2 percent, and the biggest losers were energy shares, down 3.83 percent.
The Dow rose 29.88 to 11,632.38 and the S&P 500 gained 5.19 points to 1282.19. The dollar rose another 0.55 against he euro, giving it its best 4 p.m. value since July 8. For the year, the dollar is now down 6.96 percent against the euro. It stood at $1.5690 per euro late Wednesday.
Treasuries fell, lifting the yield on the 10-year to 4.148 percent and the two-year to 2.783 percent
Patrick Kernen, who trades options on the S&P 500, said he is still leery about the stock market's ability to gain just now. "If you looked at the Vix and you look at the S&P 500 today, we were up right around a half a percent in the index and the Vix was up 2 percent ... As we go higher, usually the Vix goes lower because people become more complacent," he said. "..The fact that the index was higher and the Vix was going higher makes me kind of nervous." The Vix ended at 21.31, giving back some gains in the last 10 minutes of trading, he said.
Kernen, who is a partner at Cardinal Capital, said traders are watching oil carefully. "The other thing we see is oil down $24 in two weeks. If oil hadn't done that, I think we'd still be down somewhere closer to 1225 on the S&P," he said.
Oil's decline could be a relief to the economy, particularly if gasoline prices begin to move lower, said Mark Zandi, chief economist at Moody's Economy.com. I asked him if he thinks the current decline is a head fake or a real move down.
"I thought going from $100 to $145 (per barrel) was the head fake. I just couldn't explain so I think it's closer to where fundamentals are, thank goodness," he said. "It's a big plus if prices stay where they are or fall further. $145 and rising was just a vice grip on the economy."
"If you look at refinery utilization rates, they started falling because gasoline inventories are high, so I suspect gasoline prices are going to come down too," he said. "If we get south of $4, then $3.75 (per gallon), and then closer to $3.50, that'll make a big difference."
As far as Thursday's data, Zandi says the existing home sales could soon start to show signs of bottoming, but he still expects them to register a decline.
He said a bottoming in housing is coming because "in part because the decline in housing values is restoring affordability in some markets and more importantly distress sales are rising sharply. A fourth of all sales in the second quarter were distress sales," he said.
For jobless claims, "it's a very volatile time of the year. If claims remain within 375,000 that would be consistent with continued jobs losses," he said.
Shades of Beige
Zandi said the Fed's beige book report on the economy, released Wednesday, was consistent with expectations for a weak economy. "They did focus on housing and they also threw into the mix commercial real estate, which is going to go from being a plus to a minus for the economy," he said.
Meanwhile, Japan's Cabinet Office early Thursday lowered its growth forecast for the current fiscal year for that country to 1.3 percent from a previous 2.0 percent, blaming rising crude oil and other commodities prices, as well as the higher yen and slackening U.S. demand for Japanese goods.
Stocks to Watch
It was Kevin Johnson who headed Microsoft's online business and led the company's failed bid for Yahoo. His departure will result in a reorganization of his unit which consists of both on line services and Windows software. CEO Steven Ballmer will head the Windows group with three other executives reporting to him. Johnson is leaving to run Juniper Networks. It should be an interesting analysts meeting.
Amazon.com shares moved higher in the after hours trading after reporting earnings that topped expectations. The company said it earned $158 million, compared to $78 million the year earlier. Amazon said it believes high fuel costs are a benefit to the company, as customers choose to shop online instead of driving to stores. The company, which has a free shipping program, said shipping costs rose 38 percent in the quarter.