Stocks drifted higher Monday despite concerns about health care legislation and could now catch a tail wind from end of quarter portfolio adjustments.
Housing data will be a focus Tuesday, with February existing home sales and the FHFA home price index, released at 10 a.m. Greece continues to be a wild card, and the euro will be in play as the EU heads toward a summit at the end of the week.
"I think they're going to mark these puppies (stocks) up through the end of the quarter. I think it might go on for the next seven or eight days, and you're going to grind higher unless you get some macro shock from Greece," said John O'Donoghue, who heads equities at Cowen.
"Volume is miniscule. Nobody is doing anything. Everybody's hugging their bench mark and hoping to get to the end of the quarter," he said.
Traders have been watching health care reform as a potential catalyst that could drive the market lower, but stocks took an early morning hit, more from Greece than health care reform. After opening lower, the Dow Monday rose 43 to 10,785, its highest close since Oct. 1, 2008. The S&P 500 climbed 5 to 1165 and the Nasdaq was up 20 at 2395.
Stocks reversed course early Monday after the euro snapped back from early losses. The dollar moved lower, and stocks and oil kicked higher. The best performing S&P sector was consumer discretionary, up 1.3 percent. Health care was up 0.6 percent, drawing in investors as some uncertainty surrounding the group lifted. Energy and utilities were the laggards, each declining less than a percent.
"We did see the bottom of the euro's trading range, but we didn't make a new low," said Marc Chandler, head of currency strategy at Brown Brothers Harriman. Chandler said the foreign exchange market is waiting on the outcome of the EU summit. Chandler said it currently doesn't look like Greece will get money from the EU but the IMF may play a role. "Maybe there's room for the EU and IMF to come up with something," he said.
Chandler said the euro's recent range is $1.3850 to $1.3450, and if it keeps rising, the next level will be $1.36 to $1.3650.
"Some of the price action (Monday morning) had people getting a little excited..but as soon as the dust settled in the first couple of hours, everybody was waiting now for these big developments. More important in the U.S. data is that people are waiting for the (March) jobs report," he said. The euro was up 0.1 percent on the day, finishing at $1.3552.
Chandler and others say markets are already looking past much of the data of the next two weeks and are focusing heavily on the April 2 jobs report. "The consensus is 200,000. Some houses are looking for 300,000. The point is a bullish number is being priced in," Chandler said.
The March jobs report will be released on Good Friday, when the stock market is closed. Economists are factoring in as much as 125,000 of the projected gain in non farms payrolls from government census hirings. That contribution will turn into a negative factor in June.
Chandler said the stock market has built in the stronger job report at a time when it faces a few warning signs, including a recent pickup in interest rates and the low price of the VIX, the CBOE volatility index. A low VIX is seen by some as a contrarian indicator for the stock market. The VIX was at 16.87 , off 0.10, a level it was at in May, 2008.
Treasurys gained slightly in Monday's trading, ahead of the Treasury's Tuesday auction of $44 billion in 2-year notes, at 1 p.m. The 10-year's yield slipped to 3.664 percent and the 2-year was at 0.981 percent.
Bill O'Donnell, head of Treasury strategy at RBS, said he thinks the 2-year auction will be well received Tuesday. The when issued 2-years were yielding above 1 percent. "That's a level you've been paid to buy and the curve at the same time is a lot flatter than it was during the last auction," he said.
"I think that should help 2s even though there will be a dampened bid from Japan," he said.
"You're coming to the end of March and that's always troublesome when Japan leaves the government bond arena. They tend to repatriate foreign bond holdings back into yen," he said. O'Donnell said it sometimes takes Japan until later in April to return to the market after it leaves at its year end (March 31). There is a total of $118 billion in 2s, 5-year and 7-year notes at auction this week.
O'Donnell said the bond market was relatively quiet Monday. "Like everything else, we're following the stock market as well," he said.
What Else to Watch
The future of housing finance is a big topic on Capital Hill Tuesday, when the House Financial Services committee conducts a multi panel hearing. Treasury Secretary Tim Geithner is among those testifying at the 10 a.m. hearing.
San Francisco Fed President Janet Yellen speaks at 3:30 p.m. at a town hall in Los Angeles. Philadelphia Fed President Charles Plosser speaks in Prague at 11 a.m. at the European banking and financial forum.
The wireless industry holds its big CTIA show in Las Vegas. Earnings are expected from KB Home and Walgreen's before the bell. Adobe, Darden Restaurants and Jabil report after the bell.
Google will be a focus after it took action Monday to stop censoring its Chinese search engine. Google redirected traffic away from its China based site to its Hong Kong site, google.com.hk.
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