Is the Rally Running Out of Steam? Relax.

Is the rally running out of steam? Relax. At after-work drinks yesterday, Wall Street's yawn at better than expected economic news yesterday was being held up as an example that the summer rally was clearly running out of steam.

As proof, they pointed out that the S&P 500 on Friday rallied 2.5 percent...on better than expected existing home sales.

Now, stocks have gone nowhere for the last 3 days despite better economic news on several fronts: Case-Shiller Home Price Index, consumer confidence, durable goods, and new home sales.

The markets have run up in expectation of these better numbers; now we will need to see even stronger numbers to move it forward, these pundits say.

Relax. What we are seeing here is churning around on light volume. It is best to avoid making grand pronouncements about market trends on this type of trading.

China is churning too; the Shanghai Index was down 0.7 percent; Europe is mostly flat.


1) We're from the Chinese government, and we're here to enhance your management: The head of the Bank of China said they would scale back lending in the second half of the year. The bank's total outstanding loans and advances surged 31 percent over the six months through June.

This comes on the heels of yesterday's announcement from China's Cabinet they would use "enhanced management" to curb overcapacity and excessive investment in several industries, including steel and cement. The Chinese government had been an active buyer of aluminum (and other commodities, we can assume) from March through May of this year.

2) Toll Brothers is down 2 percent pre-open after reporting a wider Q3 loss as a result of land writedowns and tax charges.

It was another quarter of mixed news. CEO Robert Toll sees "some signs for optimism." He noted that he homebuilder has been able to raise prices and reduce incentives in "selected communities."

More good signs - the Q3 cancellation rate was at 3-year low, while backlog grew for the first time in 3 years. Additionally, deposit activity has been strong in August (up 26% year over year).

Looking ahead, the company raises its full-year home delivery estimates from 2,580-2,830 to 2,200-2,800.

However, pricing and margins declined sequentially.

3) Diageo is down 4 percent pre-open after seeing full-year profits at the low end of its previous guidance. Sales were flat, as price increases helped offset a 3-percent decline in volumes. The alcoholic drinks maker also warned that profits will grow at a slower pace over the next year.

4) Boeing up 6 percent as they expect the first flight of their 787 Dreamliner by the end of 2009; first delivery by fourth quarter of 2010

5) China's second largest wireless carrier China Unicom is up 3 percent pre-open on reports that it is nearing a deal to sell Apple'siPhone in China. The reports suggest that a deal could be announced on Friday.

A deal would allow Apple to tap into the world's largest market for wireless phones. China has about 697 million subscribers - dwarfing the approximately 270 million subscribers here in the U.S.


Questions? Comments?