Stocks offer surprising strength, so far

The Dow sheds an early loss and gains 56, despite higher oil prices and worries about Egypt. Friday's jobs report will grab investor attention.

By Charley Blaine Jul 3, 2013 5:58PM
Close-up of a burning sparkler © Imagemore, Getty ImagesThe United States will be celebrating Independence Day on Thursday -- and investors may choose to celebrate that the U.S. stock market didn't slump on Wednesday.

In fact, stocks recovered from early selling, and the major averages all finished with modest gains.

Crude oil (-CL), however, closed above $100 a barrel in New York for the first time since May 3, 2012, on speculation that political turmoil in Egypt would push prices higher. And motorists are likely to pay more at the pump as a result.

The positive finish for stocks may have surprised some. Futures trading overnight had suggested a nasty open because of Egypt and its effect on oil prices, and European stocks were off more than 1%.

But the catalysts were bullish: improving jobless claims in the United States and some cheer on the part of business that a mandate for employers with more than 50 workers to provide health insurance has been put off a year.
The Dow Jones industrials ($INDU) gained 56 points to 14.988. The blue chips had been down as many as 73 points right after the open. The Standard & Poor's 500 Index ($INX) gained 1 point to 1,615 after falling as many as 10 points at the open. The Nasdaq Composite Index ($COMPX), down 16 points at the open, ended up 10 points to 3444.

So, while markets will be closed Thursday for Independence Day, let's put the day and week into perspective.

The stock market is proving resilient.
The market peaked in May, but the averages are down 4% or so since. That means the Dow is still up 14.4% for the year, with the S&P 500 up 13.3% and the Nasdaq up 14.2%. Efforts to push it significantly lower have failed so far. A big question when volatility returned was whether the S&P 500 could remain above 1,600. It did close under 1,600 on June 20 but pushed back above that level on June 26 and has stayed there. There was one visibly weak sector on Wednesday: The Dow Jones Transportation Average ($DJT), vulnerable to higher oil prices, fell 19 points to 6,195.

Investors are not fleeing stocks yet.
It is true that the Dow and S&P 500 are trading under their 50-day moving averages, but both were trading more than 2% under those moving averages in late May. The 50-day moving average is a key indicator of investor confidence. Egypt's army ousted President Mohammed Morsi on Wednesday, while promising new elections. What's not clear is if the military move will set off a bloody reaction in Egypt or elsewhere in the Middle East.

Some stocks are showing strength.
Apple
(AAPL), down nearly 12% in June is up 6.5% this week. Fast-casual restaurateur Noodles & Co. (NDLS) went public Thursday and is up 150% already. Starbucks (SBUX) hit an all-time intraday high of $67.68 before closing at $67.30.

A decent jobs report on Friday may set off a strong rally.

 That will be because so few people will be working on Friday, and the light volume will magnify price changes. Most economists expect the Labor Department to report 165,000 jobs created in June, compared with 175,000 in May. The report, due at 8:30 a.m. ET, may also show the unemployment rate holding at 7.5%. Conversely, a weak report could mean the open will sting.

Oil prices may have rallied, but domestic pump prices have not.
Here's why. Domestic gasoline consumption is down about 1% from a year ago, putting pressure on gasoline retailers, says Tom Kloza of Oil Price Information Service, which tracks oil pricing trends. OPIS collects the data AAA uses to calculate its Daily Fuel Gauge Report. On Friday, the national average price of gasoline was $3.477 a gallon. That may be up 5.6% for the year, but it is down 8.2% since peaking in February.

Gasoline prices probably will move higher.
At least in the short run, while markets digest what's happening in Egypt. Egypt is not a big oil producer, but large quantities of crude make their way to Europe via the Suez Canal and the Suez-Mediterranean oil pipeline. Watch to see if operations at either are affected. But any prices increases are likely to be short-lived, Kloza says. Domestic crude oil production has been rising thanks to the development of shale oil deposits in Texas, North Dakota and the Northeast.

Interest rates are steady, if a bit higher.
The 10-year Treasury yield was 2.5% on Wednesday, up slightly from Tuesday and up from 1.61% in early May. The rate run-up started on May 22 when Federal Reserve Chairman Ben Bernanke started to talk about tapering down its bond purchases, now running at $85 billion a month. Bond traders (or their computers) sold bonds, forcing Bernanke and other Fed officials to insist truly higher interest rates are not yet on the way. Bernanke has insisted not before 2015.

Gold isn't moving yet.
Gold
(-GC) settled Wednesday up $8.50 to $1,291.90 an ounce. It's up 2.3% this week but is still 25% lower on the year and 34% from its peak in September 2011. The volatility since May has helped prices, but don't bet on gold's quick return to 2011 levels.

There is probably a good chance markets will be volatile through the summer. Summer is typically not great for stocks. But if the economy holds, and strong sales in autos and housing continue, the rally will follow.

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22Comments
Jul 3, 2013 9:17PM
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Stocks offer surprising corruption and gross manipulation, so far. Charley, are you NUTS? Wall Street lives solely for Ben Bernanke Bucks, otherwise it's shittt out of luck and running on blanks. There are NO solvent businesses in America, just cardboard cut outs, tables, chairs, leased space and wind. Who didn't guess that Bernanke wasted more BILLIONS of our future pumping up the markets so they show well during the 4th? Funny... the holiday is Independence Day. We are really really really far away from independence and a lot closer to indentured slavery.
Jul 4, 2013 7:49AM
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The jobs report needs to be just good enough, but not too good.  The market will be happy with the sweet spot that shows excruciatingly slow growth because that will guarantee another few months of the full $85 billion/month in QE.  God help the markets if we get a surprising high number like +350k, or a surprising terrible number, like -50k.

Volume continues to be incredibly weak.  Just because a few traders think the Dow is worth 15,000 doesn't necessarily make it so.   Kinda like a subdivision of 400 homes, worth $200k each.  Just because some moron from out of town buys one of the average houses for $275k, doesn't mean all the houses are now worth that much.

Jul 4, 2013 11:28AM
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Seems when you only look for the "Worst Case Scenario" in everything we do..

It's much simpler to accomplish, then locating the Greatest or the Best items of interest.

We truly are "The Capitans of our Ships, the Master of our Soul."

Way too many are only counting their losses, and not satisfied enough with their gains.

Many have no guidepost or stick to judge themselves against others or what life can be like, in far-away places...In many cases, they have no acquaintence of how well off they may be.

 

Set the bar high enough so that it is a reachable goal, and don't go for the highest mountain unless you can accept defeat graciously...No doubt Winning is a better elation for life, but losses can't be out of the question either...Learning how to deal with them is a very important mindset..

The bar and goal can always be raised a little more if need be, much easier to do when you are standing next to it.

 

Be not so quick to Fault upcoming Generations; Certainly they will mature and possibily ripen to the fruit we expect...Given the right tools and nourishment, they may not only become us, hopefully they will surpass us in many ways;  But still show respect for our endeavors, in helping them to attain their goals...It all depends on Choices.

 

A Happy Independence Day/ 4th. of July to All......

Jul 4, 2013 4:50PM
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Hey Fat Cat this one is for you ! (FYB)   DIE BANK OF AMERICA DIE  !
Jul 4, 2013 4:58PM
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Happy July 4 man Yankee friends, also it was a great Canada Day as well (July 1).  
Jul 4, 2013 4:37PM
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John CORZINE brought up on civil charges that is a joke to the American people ! Criminal charges for embezzlement cheating, lying and stealing investors money is what is needed !   Mr. Corzine a 10 year conviction in Federal Prison !
Jul 4, 2013 11:09AM
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To one and all ! HAPPY SURVEILLANCE DAY !  ENJOY THE HOLIDAY !
Jul 4, 2013 11:51PM
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They are artificially supported by the Fed just like housing Fed's buying mortgages a fake economy.
Jul 4, 2013 1:57AM
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From the moment Mainstream Media stopped talking about scam Derivatives on every Big Bank's balance sheet and shifted the conversation to the greatness of printing Fake Money, nothing has been surprising anymore. The markets are so unregulated and manipulated these days, why should anyone be shocked about anything. There is no Real Price Discovery and most folks seem little concerned about the FEDS ever growing Balance Sheet.

Whether it be Egypt, the Euro-Zone, Japan, China, etc in the Dumps, folks just keep acting like everything is Find and Dandy. Unemployment continues to rise in the Euro-Zone and China is literally about to implode on itself. The true effects of Government cost cutting hasn't fully shown up in our data while the effects of more Corporations not paying a living wage has. So sit back on the Fourth and let it sink in that Corporate America is slowly but surely destroying the American Dream. Let it sink in that Corporations control the Government. They always have.

Jul 4, 2013 3:54PM
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I have to take issue Mirage on TBTF.....I agree many parts of those institutions should have been pared off to die...

Allowing a "complete failure of our Financial System" was not an Option.

We would have seen a World collapse and a Depression that would have made the last one look like a teaparty in comparison.

You only have look back at what the Government, ALL PARTIES allowed to happen...AND

What past Congresses and Administrations signed onto..

You have to quit blaming the Democrats and especially Obama for what came about, his role particularily was all but miniscule..

TARP and Most Bailouts were not a birthright under Obama...

As far as who is Lobbyied and has had their pockets stuffed the most...By Big Business/Banks

I would defy you to show me the figures of contributions to Republicans compared to Democrats.

YOU CAN'T , AND YOU WON'T. 

Jul 4, 2013 12:50PM
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By requiring Banks, Savings and Loans and Credit Unions to maintain a 25% margin for all Home investments, I would think you "cut the legs off" of many would be property owners and a chance of destroying the so-called American dream...Wealth has a lesser option to be built by the masses.

Maybe well over 50% of the population.

An acceptable occurence,is that maybe "flippers" would be squeezed,from un-scruplous operations.

I do however agree with 15-20%, a good/very good credit rating and a job/occupations that can more then cover the cost of a mortage and other associated outlays in a family scenario..Along with home ownership...

Americans have to be given a chance, and allowed to have hope; In this Great Nation.

All of them.

Jul 4, 2013 12:34PM
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Mirage....Although, we may agree on several points..And agree to disagree on others..

 

Not many Banks really fail except in the case of corruption or in overly extension because of greed.

Not when you count all of the Local, Regional ones, Savings and Loans and/or Credit Unions.

When Banks are allowed to become, Investment institutions and Insurance Companies under the same umbrella; Then a line should be drawn, and failure should be a strong option.

Except for the Savers and Bondholders, maybe...Shareholders are risk holders along with owners and Executives...Execs and owners should lose all compensation along with previous comps and property if ill-gotten through inpropieties,confiscation....Made penniless in my opinion.

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