90% of S&P 500 stocks are higher this year, closing in on the 2003 record

The number of winning stocks this year is approaching a 10-year peak, writes Howard Silverblatt, senior analyst at S&P Dow Jones Indices. You’d have to go back to 1980 for the previous record. Here’s what Howard is sending to his email subscribers:

You Take My Breadth Away

           …  Year-to-date 451 of the S&P 500 issues are up (47 down), which on an annual basis is the best since 458 issues increased in 2003.  The 2003 number is also a record high from 1980, when my data series starts.  The number is significant since it shows the depth of the recovery.  In the late 1990s, the market aggregates became dominated by technology, which grew on ‘faith’ and ‘hits’, as compared to sales and cash-flow.  In 1998, the market returned 26.67%, yet only 57.8% of the issues were up, and in 1999, the market grew 19.53%, but less than half, 48.2% of the issues, were up.  For the 2013 year-to-date, 90.2% of the issues are higher, with the market aggregate up 23.39%; 270 issues are above that aggregate, with 140 issues up at least 40%.  Surely a significant number of people are seeing large gains, and surely many are not, since they remain out of the market.

            … Chasing returns is not a good reason to invest, but when enough do it the short-term impact is more buying and higher prices. Which we may be getting close to if the market stays anywhere near its current level.

(fyi – Friday set two new official highs, intraday of 1759.82, and a close of 1759.77)

Retail sales jump as fear factor for the employed ebbs

Weekly jobless claims edge up as retail sales rise (clcik to enlarge)

Weekly jobless claims edge up as retail sales rise (clcik to enlarge)

Retail sales numbers for January came out today and were surprisingly strong. Here are few things to think about in reviewing the numbers:

First, anyone who hasn’t lost a job over the past two years is probably feeling that they aren’t going to lose their jobs. The fear factor in the economy is ebbing, so those with jobs are spending a bit more.

Second, the retail numbers are unlikely to signal much good news for the unemployed — at least not for a long while. Calculated Risk notes that the four-week running average for weekly unemployment claims is rising, with the average now 28,000 above the January low:  “Both the level of claims, and the recent increase in the 4-week average, are concerning and suggest continued job losses.”

And finally, I can’t help but wondering when and whether these numbers will translate into higher tax receipts for states. So far, retail sales numbers and tax receipts aren’t in sync. Gotta keep an eye on that. The numbers, for example, don’t take into account store closings.

Here’s the top of the  Wall Street Journal story on January retail sales; click on the link at the bottom for the full story:

Retailers continued their comeback last month, with long-suffering categories like department stores and apparel retailers showing signs that consumers are returning.

January same-store sales rose 3.3%, according to the 29 publicly traded retailers tracked by Thomson Reuters. The monthly gain, the strongest since April 2008, exceeded projections for a 2.5% advance at stores open at least a year and followed a 2.9% rise in December.”I think we're seeing that customers came out after Christmas and stayed out,” said Janet Hoffman, global managing director for retail at consulting firm Accenture. “Retailers are doing a significantly better job at managing inventory. So the markdown frenzy we saw last year didn't occur,” which will help profit, she said.

via Retailers Gather Strength as Sales Rise 3.3% – WSJ.com.

Graphic from Calculated Risk

Winners & losers in the recession: A graphic guide

Several things jump out at me in studying the Wall Street Journal’s excellent graphic on job losses since the beginning of the current recession:

  • The auto industry, before the recession began, accounted for just 0.7% of the national economy and has dipped to 0.5%. On a percentage basis that’s huge —  nearly 29%.
  • Next in line for big job losses, construction, accounts for a much bigger swathe of the economy, currently 4.7% vs 5.2% at the start of the recession, a 13% drop.
  • Education, health, and to a lesser degree, government, picked up jobs during the recession. In his blog, the NYTimes’ Floyd Norris notes that for the first time in a decade, the private sector has failed to grow.
  • Mining and logging industries were expanding for most of the recession, but are losing jobs now, something to keep an eye on. Demand for commodities is an important sign for a real recovery.

how the recession reshaped job market

Banks need more capital but credit crunch may be easing

The much talked about  federal stress test of the nation’s largest banks shows ten of 19 institutions will need more capital, but are unlikely to dig into TARP funds, the Wall Street Journal reports. That signals further thawing in the markets as investors remain in glass-is-half-full mode. Rather than hurting bank stocks, the leaked results are boosting confidence, creating a self-fulfilling prophecy which could help get the economy unstuck and ease the credit crunch. For the most part, investors don’t even seem concerned about the integrity of the stress tests.

Administration officials believe many banks will be able to raise capital without tapping the Troubled Asset Relief Program’s remaining $109.6 billion. They’re optimistic the bulk of the money will come from private investors made more confident by the glut of information provided by the tests. Banks could sell assets and stakes in their companies, a move that could accomplish another government goal of shrinking some of the country’s largest banks.

Officials say banks that can’t tap private markets will be able to raise capital by agreeing to convert some of the government’s existing preferred shares into common equity, a move that would leave the government owning chunks of the nation’s largest banks.

via More Banks Will Need Capital – WSJ.com.

Bank stocks have helped lead a monster rally this spring. The S&P500, now at 907.24, is up 34% from its 12-year low posted in March and has erased its 2009 losses. (The index, of course, is still down 42% from its all-time 2007 high.) Banks are lower for the year, but have tripled since March.

There’s more good news: Some credit markets are easing, which is always a critical ingredient in stock market rallies. Through mid-April, corporations sold $975 billion in new issues globally, a record, according to Dealogic. On Monday, the WSJ reports that companies sold $10 billion of bonds through another government program, the Federal Reserve Term Asset-Backed Securities Loan Facility. Initially, interest in the program was tepid, a bad sign for the credit crunch. Unlike TARP, TALF’s sole purpose is to get more cash into banks so they can lend. The weak response was worrisome.

That changed Monday. A small group of investors asked J.P. Morgan Chase to put together a bond offering backed by credit-card loans that is eligible for the program. The $5 billion deal is the largest yet of the TALF-eligible offerings, according to Barclays.

The J.P. Morgan deal sold at 1.55 percentage points over the one-month London interbank offered rate.

Banks sold $8.2 billion of securities under the plan in March and $2.57 billion in April.

Throughout the crisis, banks have been hesitant to lend — and rightly so. Their health and the health of many borrowers have been questionable. The most recent Federal Reserve survey of senior lending officers reveals that bankers in April are still tightening lending standards — but not as intensively as they did in January. Things are easing up a bit for businesses, but are still pretty tough for mortgage borrowers. Does anyone (besides ACORN) really want looser lending standards?

Taxpayers have been hoping that TARP money would pry open the wallets of its recipients. But other programs are better suited to achieving that goal, like the FDIC guarantee of debt issued by financial institutions. More than $100 billion in FDIC-guaranteed securities have been sold this year — including by Goldman Sachs, an unlikely candidate to lend to retail consumers. (That’s another story for another day.)

Treasury has consistently misled on TARP — initially established as a buyout fund for toxic assets. Turned out Treasury couldn’t figure out how to execute that plan; the markets were in too much turmoil to price the troubled assets. Treasury changed course and said the money would be used to get banks lending again. Bert Ely, a banking consultant, says TARP should really be used to bolster the capital base of the banking system so that it can regain its footing and then resume lending. Most recently, he cautioned against banks being forced to lend before they are ready. Besides, he notes, in 2008 lending actually rose 5.63% at commercial banks, but they account for about only one-fifth of lending.  The rest comes from the securities markets and other types of financial intermediaries, like insurance companies. Ely sees the state of lending quite differently form the mainstream press: “The economy is in recession and working off the consequences of a housing bubble fed by excessive mortgage credit. Given that loan demand typically falls during a recession, it’s amazing that bank lending increased as much as it did last year. It was essentially flat during the 2001 recession.”

In sum, the market response to the stress test suggests that banks will be able to raise money to shore its capital; investors are ready to invest in asset-backed securities, which should supply more cash to lenders to do what they are in the business of doing: lending. And that is really the only safe route to ease the credit crunch. The next question: Are the stress tests real? Will the markets get a rude surprise Thursday and decide banks are in much worse shape than currently believed? Nouriel Roubini, aka Dr. Doom, published an OpEd piece in the WSJ today that challenges the credibility of the stress tests and calls for greater oversight of government funds. He notes that data from the International Monetary Fund point to extensive insolvency in the banking system. But the markets aren’t interested  in the doom-and-gloom scenario.

The banks still face plenty of challenges and the bailout has plenty of leaky holes in it. Roubini outlines a list of outrageous behavior that persists in the sector. And homeowners are still suffering. But the banks and government may be getting smart, leaking news of the stress tests in a way that manages market response. It will be interesting to see if the details released Thursday match the snippets of information leaked over the past few days. Stay tuned.

Dr Doom sees signs of life in US economy

Dr. Doom

Dr. Doom lightens up

Nouriel Roubini, credited with predicting the economic crisis before most other prognosticators, says he expects the US economy to grow by 0.5 to 1.0 percent in the first quarter of 2010.

The man known as Dr. Doom, however, isn’t exuberant. In an interview with Newsweek and The Washington Post, Roubini says unemployment could exceed 10% this year and then rise above 11% next year. But Roubini joins a chorus of voices that the worst may well be over.

I do agree that there is an improvement in the sense that the rate of contraction is not going to be as much as it has been in the last couple of quarters, but I still believe that the bottom of the economy [will be seen] toward the beginning or middle of next year. So my views are more bearish than the consensus.

via RGE Monitor

As for that moniker, Dr. Doom, Roubini demurs: “I am Dr. Realist.”  Roubini credits government moves for the improvement — but phrases it in characteristically muted tones:

I don’t believe we are going to end up in a near-depression. Six months ago I was more worried about an L-shaped near-depression. Today, after the very aggressive policy actions taken by the U.S. and other countries . . . we are, instead, in the middle of a U.

Image via Flickr

Signs of spring — but let’s hope frost doesn’t ice it

Is it my imagination or am I really seeing a few signs of relief from the unrelenting barrage of bad news on the economic front? Yesterday’s Wall Street Journal actually included an entire story about economic indicators that weren’t terrible. The retail sales report for January was so good that no one believed it. Maybe something positive is happening — independent of the US Congress, new President and Treasury-Federal Reserve money press?

Yesterday I had a lengthy chat with an editor in Detroit. At the end of our conversation I asked, so, how are things in motorland? I expected to hear a tale of woe. But I didn’t. Much to her surprise as well as mine she launched into a story about heading to a pricey restaurant Saturday night. She and her husband had a gift certificate left from Christmas and they decided to splurge. They didn’t make reservations. In this economy, who needs reservations for high-end eateries? Well, when they arrived, the restaurant was so busy they couldn’t find a place to park.

And then she began talking about vacation homes on Lake Erie — a place completely dependent on the auto industry. A couple of years ago, foreclosures sent the neighborhood reeling. But then people stepped in, bought the foreclosed properties. The buyers either razed the homes or rehabbed them. In any event, one just sold for price well above 2007 levels.

Later that evening, a VC wrote on Twitter that business was better than expected in his neck of the woods.

That make three signs of recovery in one day.  And now on top of that, the WSJ today reports that economists have changed their minds: A recovery won’t emerge in the second quarter, the previous consensus. That’s enough to make me wonder if the market is nearing the trough.

This will be my first post with the tag “recovery”.