Stocks Start 3rd Quarter with Modest Gains

After closing out what was a very good quarter with a final bummer of a day, investors toed the waters at the opening of the third quarter, nibbling at positions in a very slow session. Stocks finished with solid gains on low volume, after a slew of economic reports showed the economy remaining in the throes of recession, though clearly not in as rough shape as 3 to 6 months ago.

The Chicago Purchasing Manager's Index (PMI) was up sharply in June, to 39.9, after a reading of 34.9 in May. Still, the number was well below 50, which is the threshold for expansion. The report confirmed continued weakness in manufacturing, though slightly improved on a month-to-month basis.

The Institute for Supply Management (ISM) index was also up in June, with a reading of 44.8 following a 42.8 number in May.

Construction spending for May was off 0.9%, offsetting a gain of 0.6% in the prior month. Pending home sales were up a marginal 0.1% in May, after April's surprisingly good showing of a 7.1% gain.

Finally, the ADP Employment Report [PDF}, an unbiased snapshot of the private labor market, recorded a loss of 473,000 jobs in May, slightly better than the 485,000 jobs lost in May.

With all that to chew on, stocks were up sharply right out of the gate, but peaked early in the day. After 10:30 am, the major indices lost value for the remainder of the session.

Dow 8,504.06, +57.06 (0.68%)
NASDAQ 1,845.72, +10.68 (0.58%)
S&P 500 923.31, +3.99 (0.43%)
NYSE Composite 5,953.82, +48.67 (0.82%)

Advancing issues took back the initiative over decliners, beating them, 4476-1870. New highs outnumbered new lows, 74-62, but volume was depressingly low, not uncommon in a holiday-shortened week. The markets will be closed on Friday.

NYSE Volume 950,845,000
NASDAQ Volume 2,000,025,000

Crude oil futures fell 58 cents, to $69.31, after the government reported a build in gasoline inventory of as much as 2.3 million barrels. That kind of data could spark a real rout in oil futures, as prices traditionally peak nearing the 4th of july holiday. With that much of a glut on the market and the economy generally weak, demand for oil and gas may remain slack for months, cutting into prices. One would normally think that in a true open market, but the futures market is anything but, dominated by hedge funds and large traders who can exert enormous control over price movements.

Gold shot up $13.90, to $941.30, while silver tacked on 16 cents, to $13.76.

The Commerce Department releases June Non-farm payroll data tomorrow morning prior to the market open. With the ADP figures already in hand, the government's massaged figures may prove anti-climactic. Still, we're off and running in the quarter which was promised to be the one in which recovery really began. There are still signs that the recession is easing off, but actual recovery may still be as many as 6 months away, if not more. Investors may find themselves hoping for more than companies can deliver, though there have been reports of analysts raising estimates for a large number of companies. If they can meet those numbers, stocks could actually advance further. We are now in the 23rd month of the bear market, so a turn could actually occur at any time, though I'd hedge my bets against it. Another sharp decline, and possibly a retest of the March lows are probably more likely.