Market Insider

Wednesday Look Ahead: Stocks Adrift a Year Back from the Brink

One year after hitting bottom, an indecisive stock market drifts higher and could keep moving in that direction.

Traders at the New York Stock Exchange.
Photo: Oliver Quillia for

The Dow inched up 11 points to 10,564 Tuesday, the mirror opposite of Monday's tiny move lower, and the S&P was up 1 at 1140. Nasdaq was 8 points higher at 2340. The dollar rose, and as a result, commodities slid. Oil fell $0.38 to $81.49 a barrel.

"We're getting a tad bit tired," said Wedbush managing director Steve Massocca of the market's rally.

Tuesday marked the one-year anniversary of a 12-year low in the stock market. Since then, stocks have climbed nearly 70 percent, but have been recently range bound on light volume.

Among the more interesting movers Tuesday were the stocks of some of the casualties of the financial crisis. Several financial companies, where the government still plays a role, were big gainers, including Citigroup, AIG , Fannie Mae and Freddie Mac .

Citigroup took the early lead, but was joined by the rest of the group amid a flurry of market chatter and speculation. Citigroup's move higher also came ahead of the pricing of a roughly $2 billion preferred offering, which traders say was oversubscribed

Traders say Citi also got a boost from a Fortune magazine story quoting Fairholme fund manager Bruce Berkowitz, who bought $700 million in Citi stock and now believes the worst is over for Citi shareholders. Citigroup declined to comment on its stock move.

Massocca, who is based in San Francisco, said he thinks stocks will continue to rise for now. "The economy continues to have good numbers and when I talk to people who work in other businesses, they tell me uniformly their businesses are getting better," he said.

"These are all anecdotal but it seems like the economy is certainly not declining any further, and with the kind of productivity numbers we saw last week it seems people will start to have to hire," he said.

There's not much in the way of economic reports Wednesday. Wholesale trade is released at 10 a.m. Traders say the big reports of the week are weekly jobless claims on Thursday and retail sales on Friday.

Retail sales could be a plus for the market if the government number is similar to the better-than-expected monthly sales reported by chain stores last week.  Pimco managing director Tony Crescenzi pointed out in a note Tuesday that the International Council for Shopping Centers reported that chain stores sales were up 3.4 percent year-over-year for the week ended Saturday, the highest level in about three years. It also follows weak sales during a series of winter storms.

"Strength in consumer spending is necessary to feed the second phase of the inventory cycle, which will see inventory investment move from a slower pace of liquidation to outright accumulation in anticipation of rising demand," he wrote. "If this happens, the romance that for a year has buoyed risk assets will move to a new chapter, one that will lead imaginative investors to believe with greater conviction than before that the U.S. may experience an old-normal styled recovery."

Traders are also watching the Treasury's auction of $21 billion in 10-year notes Wednesday, following its well supported auction of 3-year notes Tuesday.  

Nomura Treasury strategist George Goncalves said the 3-year auction went smoothly. "It's constructive in comparison to the sets we've been getting, in particular the refunding in February which kind of got people all up in arms thinking rates were going to rise quickly again," he said. "This time around, we had a pretty decent showing. That's good."

Goncalves said the Treasury market's behavior has been odd in that volume has been very light, yet there is enough support from buyers for the government's billions in auctions. This week, about $200 billion in bills, notes and bonds are being auctioned.

"This 10-year auction will not be as problematic as last month's..People are feeling a little bit better because at least the first auction of the week went okay," he said.

"Tomorrow's important because with the 30-year the day after, if tomorrow doesn't go well, it will get people a little skittish for the 30-year," he said.

Goncalves said he is seeing growing signs of complacency across markets, as investors seem to be waiting to make a decision. "I think implied volatility might pick up but realized volatility is non existent. We're saying one thing and doing something else. They're (investors) are feeling these concerns but taking no action," he said.

"The problem is they can wait for a long time. Investors get to a point of complacency..those are the most dangerous periods in markets," he said, noting the markets are not yet at the point.

He said investors appear to have moved on from worries about Greece, yet it may emerge as a problem later. "We're kind of taking things in stride, but maybe too much in stride," he said.

Massocca also noted that stocks have moved past Greece. However, U.S. states and sovereign issuers could become problems for the market once again if troubles surface.

The market though should continue higher, as long as easy monetary policy continues to provide liquidity. "Pixie dust being spread by central banks is keeping this whole thing alive," he said.

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