For the past few weeks, there has been a lot of chatter about psychological barriers. Surely the Dow Jones Industrial Average would stumble at 9000, some experts lamented. The S&P 500 would have a fight at 1,000, they opined. Nasdaq 2000? Another fight at a psychological barrier, market gurus pontificated. Well, the so-called experts that made those prognostications were wrong on all counts as the bulls continued to run on Monday, sending the S&P 500 above 1000 for the first time since November 2008.
The measure of the 500 largest US stocks finished the day up 15.15 points at 1002.63, just a point off its intraday high. The Dow appears to be inching its way to 9300, closing up nearly 115 points to 9286.56. The venerable index came within 1.57 points of 9300 before retreating a tad. Of course the Nasdaq, which has been the leader of this rally, joined the party, skating past 2000 with the greatest of ease to close up 30.11 points to 2008.61. Monday's close represents the first time the Nasdaq has closed above 2000 since October 2008.
Market Stats Table
A couple of good economic reports got the market off to fine start this morning and it never looked back. The Institute for Supply Mana agement's manufacturing survey helped fan the flames of the rally by reporting a rise to 48.9% in July from 44.8% in June. That is the strongest level for the temperature check of US manufacturers since September 2008 and well ahead of the consensus estimate of 46.2%. The survey has been steadily rising for the past several months, which gives the bulls fodder that the economy is indeed recovering, but it pays to note that only readings above 50% signal actual expansion.
Not to be outdone was the construction sector with Commerce Department's report that construction spending rose 0.3% in June. The 12-month growth rate in private construction spending improved to -16.3% in June from -18% in May.
This pair of data points may be classified as those notorious green shoots that the bulls have been clamoring for quite a while now. Another interesting anecdote is the fact the only method of tempering this rally that the bears have devised is to mention that stocks are still 30% or more removed from their 2007 highs. Yes, that talking point is true and it cannot be argued, but the other side of the coin is that the Dow has tacked on more than 500 points in two weeks, the Nasdaq has added close to 120 points and the S&P has soared past 1,000.
Those are strong moves in a short amount of time that few, if any, market observers saw coming so quibbling over the fact that stocks are still off their 2007 highs is kind of like passing on New York strip and demanding a filet mignon.
Even news that Bank of America (BAC) would settle charges with the Securities and Exchange Commission over fibs told to investors regarding the Merrill Lynch acquisition could not derail the bulls on Monday. The SEC said Bank of America was less than forthright to shareholders regarding bonuses that were paid to keep Merrill executives around after the acquisition and saddled the bank with a $33 million fine.
And what was the outcome for the stock? The Dow member rose 53 cents, or 3.6%, to $15.37 and has nearly tripled in the past six months. News of management reshuffling that included the hiring of former Citigroup (C) CFO Sallie Krawcheck to lead BofA's wealth management unit had some investors speculating that a succession plan for embattled CEO Ken Lewis is closer to being established and that was enough to send buyers into the stock.
Turnover at the highest levels of Bank of America has been brisk in recent months and the Street seems to favor these moves. It was just a couple of months ago that I mentioned here that some major BofA shareholders wanted the entire board removed. That did not happen at the most recent shareholders meeting, but since then, 10 board members have departed.
Solid earnings reports from UK banks Barclays (BCS) and HSBC (HBC) helped bank stocks book decent gains on Monday. Both Barclays and HSBC, the largest European bank, have American Depositary Receipts (ADRs) that trade in the U.S., and their bullish reports may show that things are improving in the U.K. Do not underestimate the value of that news as it was just a short while ago the U.K. banks found themselves to be even more imperiled than their American counterparts.
The Philadelphia Bank Index (BKX), which tracks the 24 largest US banks, continued its March higher on Monday, rising $1.06 to $41.50. BKX now rests well above its 50 and 200-day moving averages and looks poised to break through its May high of $43.80.
The bullish market tenor on Monday also helped lift commodity prices, with copper's rise noteworthy among the metals. I mentioned copper prices in the Market Wrap a couple of weeks ago, discussing their rapid rise and how some market mavens use the metal's prices to measure the strength of market rallies and recoveries. Copper climbed to its highest level in 10 months with the August contract closing near $2.74 an ounce.
As an equity play on copper, I mentioned Freeport McMoRan (FCX), the largest US copper producer. That was July 20 when the stock was in the mid-50s. Well, the rally, at least the rally in copper prices, appears to be for real as Freeport's shares closed Monday at $65.15. That is good for almost 20% in two weeks and the chart does not show much in the way of resistance until the psychological level (see the theme developing?) at $70.
What about crude oil you ask? The Monday commodities rally did not pass over black gold as crude for September delivery closed above the psychologically important $70 a barrel level. That was good to help lift the fortunes of major explorers like Exxon (XOM) and Chevron (CVX), which delivered less than stellar earning reports last week. Both stocks were up on Monday, but the gains were nothing to write home about.
By now, you know what I like to watch when it comes to the oil patch and that is the Oil Services HOLDRs ETF (OIH). OIH put in a bottom around $86 in early July and has since soared back above $100, adding $4.50 today, to close at $108.02. The critical $100 level now acts as support for OIH and a move to the June high of $115.64 could be in the offing if crude can break $75 a barrel.
Tuesday promises to be an eventful day on both the economic and earnings news fronts. Before the bell, the Commerce Department may give us some insight regarding the health of the consumer with personal income and spending data. Predictably, personal incomes are expected to decline 1% for June after a 1.4% rise in May. June's personal spending number is expected to inch up 0.3% in June after rising one percent in May. Not a gain worth bragging about, but hey, a gain is better than a decline when it comes to these data points.
There is also more news from the housing sector on the docket for tomorrow. The National Association of Realtors will deliver news of June's pending-home-sales and the market is expecting a 0.3% increase after a 0.1% pop in May. Remember that last week's housing news was a positive and a continuation of this theme is a must for the bulls to continue their recent market dominance.
On the earnings front, CVS Caremark (CVS), the drug store operator, reports second-quarter results before the bell and analysts are forecasting profits of 64 cents a share on sales of $24.4 billion. CVS would do well to excite the Street by beating those numbers and upping its guidance after the bullish reports by rivals Express Scripts (ESRX) and MedcoHealth Solutions (MHS).
Another company reporting before the bell that could be a catalyst for Tuesday's market sentiment is homebuilder D.R. Horton (DRI), the largest US homebuilder. Analysts are calling for a loss of 21 cents a share, so an upside surprise and/or encouraging words about the housing sector would be welcomed with open arms by investors. It is worth noting that D.R. Horton rival Putle Homes (PHM) reported a second-quarter loss of $189.5 million, or 74 cents a share, on Monday.
Other names that might be worth watching include agriculture giant Archer Daniels Midland (ADM). The Street consensus there is a profit of 45 cents a share. Emerson Electric (EMR), the industrial conglomerate, is expected to post a profit of 57 cents a share. For a check on construction and infrastructure spending, keep an eye on Martin Marietta Materials (MLM) where analysts are expecting a profit of 77 cents a share.
What superlatives are left to heap on the market at this juncture? The Dow was up 9% in July, good for its best July performance since 1989. That is certainly nothing to scoff at and leads me to talk more about resistance areas than support. Picking a level at which the Dow is going to struggle has proven futile. After all, the index blew 8800, 9000 and 9100 with such ease that as long as bad news doesn't emerge, 9300 will probably be broken as soon as Tuesday.
On the all-important psychological basis, 9500 is probably the next resistance point and 9000 seems to have been established as the first support area. I mentioned the Stochastics showing an overbought condition last week in the low 70s. They now rest around 93. Make of that what you will.
The scenario is similar with the S&P 500 with Monday's close above 1000 showing that support has been established around 980-985 and resistance still a fair bit off in the 1020-1025 area. A break of 1025 could take the index to, you guessed, another psychological barrier at 1050. That probably will not happen on Tuesday, but a close in the 1020s could give the bulls more fuel for their fire. A move to 1100 gets the S&P 500 back to its pre-Lehman Brothers collapse level.
S&P 500 Chart
The Nasdaq posted a 7.7% gain in July and appeared to be stalling toward the end of last week, which probably led more than a few investors to bet on a decline for the tech-heavy index today. Mr. Market obviously had a different plan in mind. Like the Dow, the Nasdaq Stochastics resided in the 70s a week ago. They now hover around 92.5. With a lack of catalysts outside of Cisco's (CSCO) earnings report, the Nasdaq could be the first of the major indexes to see its rally stall. Even if that happens, only a fall to or below the 1950 would be truly concerning.
The biggest news catalyst for the week comes on Friday in the form of July unemployment data so with no real stumbling blocks on the horizon until then, it would be no surprise to see the bulls continue their run over the next few days. Sure, stocks appear overbought at this point and the market has rallied hard and fast in a condensed period of time, but is this a trend worth betting against? Probably not.