Rally Continues, Though Pace is Sluggish; Bernanke Gets Obama Nod

After the Dow took a day off from recording gains on Monday, it was back to business as usual, as the Blue Chips joined the other major indices with gains on Tuesday, marking the 6th straight day of positive returns for the S&P, NASDAQ and NY Composite. Signs that the rally is running out of gas, or already is on empty, were evident in afternoon trading, not only today, but on monday as well, as stocks gave back earlier winnings.

The news flow was almost all positive on the day that President Barack Obama announced his intention to reappoint Ben Bernanke as Chairman of the Federal Reserve. Bernanke faces scrutiny by the Senate, which must confirm him for a second four-year term. That news, along with an upbeat report from the housing sector, got stocks off to a flying start, but enthusiasm waned as the day wore on, though all of the indices remained in positive territory for the entire session, ending - for the second straight day - with less-than-impressive moves.

The slow pace of advance is probably a good sign for traders, as investors are now aware that the market may have gotten ahead of itself last week and that the potential for a pullback - though not a substantial one - is great. With confidence building in most sectors, the fear is not that stocks will suffer a severe setback, but that precious profits will erode. many investors were hit hard by the bear market of 2008 and earlier this year and are still very cautious, thus booking gains at almost any opportunity. Riding this long rally has taken nerves of steel, and while some kind of correction seems inevitable, there's a solid chance that stocks may continue to ride high.

Judging by Tuesday's news - consumer confidence up from 48.1 in July to 54.0 in August and another monthly improvement in the S&P/Case-Shiller Home Price Index [PDF, with charts] - doubts for a successful recovery continue to be shredded. The widely-accepted housing index showed another decline year-over-year, but fared better than in the first quarter. While not much to go on, the hope is that housing woes have diminished and the sector will continue to improve, though there's debate on that front as well as others.

The S&P/Case-Shiller U.S. National Home Price Index – which covers all nine U.S. census divisions – recorded a 14.9% decline in the 2nd quarter of 2009 versus the 2nd quarter of 2008. While still a substantial negative annual rate of return, this is an improvement over the record decline of 19.1% reported in the 1st quarter of the year.

Dow 9,539.29, +30.01 (0.32%)
Nasdaq 2,024.23, +6.25 (0.31%)
S&P 500 1,028.00, +2.43 (0.24%)
NYSE Composite 6,697.22, +26.08 (0.39%)

Since the news flow was somewhat choppy and unconvincing, though still is more positive than negative, investors showed considerably more resolve than on Monday, with advancing issues trumping decliners, 3731-2686, and 220 stocks making new highs compared to just 73 new lows. Volume was disappointing once again, though the indices are now at or near highs for the year.

NYSE Volume 1,303,106,000
Nasdaq Volume 1,952,415,000

Part of the reason for the flaccid returns in equties were due in some part to the nearly across-the-board declines in commodities. Crude oil led the energy sector lower, losing $2.32, to $72.05. The metals were about the only winners, with gold up $2.30, to $946.00 and silver ahead marginally as well, gaining 12 cents, to $14.35. Almost all of the consumable commodities - from live cattle to coffee - trended lower. There's still no real pricing power at the low end of the supply chain, making margins tight and profits for finished goods and businesses difficult to attain.

Wednesday's Durable Goods Orders kicks off the morning session, with anticipation high over the success of the "Cash for Clunkers" program and how it will skew the figures in the automotive sector. It's a wall of worry, to be sure, but the market continues to climb. Any pullback here would more than likely be short-lived and narrow.