DIA -.26%, SPY -.20%, QQQQ +1.09%
10-Year Treasury +1/4, yielding 4.12%
Tech rally! It has been a long time since I have used that phrase, but that's what happened today. The NASDAQ reacted positively to Dell's inline earnings for this quarter and positive guidance for next quarter. This reinforced Cisco's positive earnings news from earlier in the week. NASDAQ's gains could be a very positive sign of things to come. The tech market has been out-of-favor with investors for a long time. Technically, most tech sectors are oversold. Should the good news in tech continue, their shares would be the recipients of the outflow from commodity and energy stocks, which have led the market for some time.
The NYSE was a different story. The drop in oil yesterday started the sell-off. Energy can commodity stocks have led the Dow higher for some time. A drop in commodity prices would lower commodity and energy companies' earnings, making them less valuable. As a result, investors are selling commodity shares.
The 10-year Treasury rose ¼ to close at 4.12%. The long-bond benefited from the continued fall our of the GM downgrade. Traders are concerned that either some funds will be forced to dump a large position of GM bonds on the market shocking the corporate debt market, or some fund will essentially go belly-up. None of these rumors are confirmed; they are simply rumors floating through the market right now. From a technical perspective, the yield chart is very overbought right now, indicating a higher probability of a sell-off in the near future.
Oil closed up 13 cents to close at $48.67. Market reports cited a return of speculators as the reason for the rally. There was no fundamental news to move the market in either direction.
The dollar rose .6% versus the Yen and .4% versus the Euro. The currency market shook off the 5th strait monthly drop in consumer sentiment, and instead focused on this weeks bullish economic news - the 9.2% drop in the trade deficit and the increase in retail sales. In addition, Italy is in a recession, retail sales are low throughout the EU region and German industrial production fell for the second month. This negative news depressed the Euro relative to other currencies.
Finally, "The U.S. Import Price Index increased 0.8 percent in April, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The advance, the fourth in a row, followed a 2.0 percent increase in March, and was again led by rising petroleum prices. Export prices rose 0.6 percent in April after increasing the same amount in March.... Prices for overall imports increased 0.8 percent in April after rising 3.5 percent over the first three months of 2005. Petroleum prices rose 3.1 percent in April after a 12.3 percent jump in March and increases of 5.0 percent and 2.2 percent, respectively, in February and January. The price index for import petroleum advanced 43.1 percent over the past year. Prices for nonpetroleum imports also increased in April, rising 0.4 percent, following a 0.3 percent advance in March. Nonpetroleum import prices have declined only once in the past 12 months and increased 3.0 percent over that period. Overall import prices rose 8.1 percent for the year ended in April."
This number came in higher than expected. Some of this is the result of a cheaper dollar. It also indicates producers have more pricing power - an ecogeek way of saying they can raise prices without losing customers. Given the advanced stage of this recovery, some inflation should be expected. However, the question is how much before it gets out of control. At the very least, this number should guarantee a 25 basis point hike at the next Fed meeting.