Friday, May 1, 2009

Despite Conditions, Stocks Continue to Gain

May came in with a whimper, but investors continued to bid stocks higher, despite continuing evidence that the financial underpinnings of the US economy is nowhere near any condition even remotely resembling healthy.

Economic reports were hardly encouraging. Factory orders for March fell more than expected, off 0.9%, when the anticipation was for a modest decline of 0.4. Additionally, the February figures were revised lower, from a gain of 1.8% to just 0.7% higher. Auto sales continued to slump. The major manufacturers reported another poor month, with overall sales down 30-40% from a year ago. Chrysler led the decline, with sales off by 48% in April. Ford and GM reported sales down 33% for the month.

Also, after the close, the FDIC shut down two banks, one in Georgia and one in New Jersey, bringing the number of bank closures this year to 31. 25 banks were shut down by government regulators in 2008.

Dow 8,212.41, +44.29 (0.54%)
NASDAQ 1,719.20, +1.90 (0.11%)
S&P 500 877.52, +4.71 (0.54%)
NYSE Composite 5,568.76, +55.40 (1.00%)

Still, investors insisted on keeping the rally going for the 8th week out of 9 for the Dow and S&P, and 9 straight for the NASDAQ. Advancing issues beat decliners, 3739-2721, but there were more new lows than highs, 77-32. Volume was dull, especially for a Friday.

NYSE Volume 1,335,943,500
NASDAQ Volume 2,152,036,000

The price of crude oil shot up $2.08, to $53.20, as is customary this time of year, though demand does not in any way warrant consumers paying more than $2.00 per gallon at the pump, which has been the case for some time. While the argument - that people drive more in warmer weather - is traditionally correct, current oversupply conditions indicate a lower price would be customary, though in the world of rigged markets, such as the consortium of five major oil companies controlling the price of gasoline worldwide, prices have remained at elevated levels, though certainly not those seen last summer.

Gold fell $3.00, to $888.20, and silver gained 18 cents, to close at $12.50 the ounce.

With another week of stock market gains in the books, one must realistically question the wisdom of buying stocks at this point. Stocks generally lag during the summer months and the major indices are up anywhere from 25-30% off their March lows. If economic recovery is at hand, then these prices and gains may be justified. However, most of the reportage of late has been very one-sided, nearly assuming that the recession/depression will be over and done with by the end of summer or early autumn.

That is quite a bit of wishful thinking, and the views of the cheerleaders in the financial media - whose job it is to promote investment in Wall Street stocks - can hardly be seen as unbiased. Realistic assumptions about the economy and its effect on publicly-traded companies should be made without the requisite commentary. In that regard, one cannot honestly suggest that economic conditions have improved to such a significant degree as to proclaim "recovery at hand," as many commentators have done during the course of this bear market rally.

Only time, and stock prices will tell whether investors were making wise bets during the past two months. It is usually understood that stocks climb a "wall of worry" even in the best of times. This current rally seems to have been built upon much misplaced hope and enthusiasm. It has been quick, abrupt and powerful, not what one would expect after such a precipitous decline.

The coming weeks and months will be interesting, indeed. The fireworks begin in earnest on Monday, when the government releases the results of their bank "stress tests." The weight of Chrysler's bankruptcy - and the fate of GM, soon to be determined - will also play a larger role in the direction of stocks.

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