DAILY BRIEFING

 

TRANSPORTS ROCKET!

 

 

 

 

 

Clark K. Yingst                                                  March 14, 2013

Chief Market Analyst

Most  U.S.  stocks  finished  higher  yesterday,  Wednesday,  March  13,  2013, extending anew the rally triggered by Fed Chairman Ben Bernanke‟s decidedly “dovish” testimony before the Senate Banking Committee on Tuesday morning, February 26, 2013. Yesterday‟s extension of the two-week advance, still largely uninterrupted and thus frustrating investors waiting for opportunities to buy a pullback, followed Tuesday‟s short-lived and shallow consolidation.SEVENTEEN AND COUNTING!!!!!!!!!!!!!!!!!We were unable to identify any particular catalysts, macro-economic or corporate, for Tuesday‟s resumption of the Fed-fueled rally:Yesterday‟s news on February 2013 U.S. retail sales, the seventeenth ‘blowout’ report on the U.S. economy in little more than two weeks, could have provided a catalyst, but consumer-driven sectors of the market delivered a curiously mixed performance. To be sure, consumer services outperformed the Standard & Poor‟s 500, gaining more than three times as much, but consumer goods not only finished slightly lower, but sadly underperformed the widely-benchmarked index for the seventh day in a row! Hmmm?

 

Happily,  this  morning‟s  news  that  initial  claims  for  unemployment  insurance unexpectedly declined in the latest survey week ended this past Saturday, March 9, 2013, appears to be creating some renewed interest in the group, at the moment slightly outperforming the parent.

 

Parenthetically, and according to our continuing day-to-day count, this morning‟s news on jobless claims, a high frequency leading indicator of non-farm payrolls and the unemployment rate, represented the eighteenth report on the U.S. economy since Monday, February 25, 2013 that beat Wall Street‟s consensus estimate, the great majority, including today‟s, by a sufficiently wide margin to be considered bona fide „blowouts.‟

 

RECAPPING WEDNESDAY’S RALLYHighlights of Wednesday‟s extension of the Fed-inspired two-week rally included the following:

 

THE INDICES:

Seven  of  the  nine  major  equity  indices  that  we  track  finished  higher  on Wednesday, two lower.

 

The New York Stock Exchange Composite and NASDAQ 100 were yesterday‟s only two „holdouts,‟ but the declines were barely negligible. The NYSE Composite lost a mere 0.03%, the NASDAQ 100 only 0.08%.

The range of gains in Wednesday‟s seven winning indices was unusually wide:

• The Dow Jones Industrial Average, the only index among the nine that we follow to finish higher on Tuesday‟s consolidation, was the laggard among yesterday‟s seven winners, advancing a mere 0.04%.  However, the Standard & Poor‟s 500 and NASDAQ Composite didn‟t exactly set the world on fire. The 500 advanced only 0.13%, the NASDAQ Composite an even smaller 0.09%.

• The Dow Jones Utility Average, Russell 2000 and Value Line Index delivered much  better  and  remarkably  comparable  returns  despite  having  little  in common:

The Dow Jones Utility Average gained 0.40%, all but reversing Tuesday‟s market-worst decline.    The Russell 2000 gained 0.39%, the Value Line 0.38%.

• The  Dow  Jones  Transportation  Average  did  set  the  world  on  fire  on Wednesday:

Continuing to defy technical gravity, the Transports rocketed 1.63%, more than ten times as much as the average gain in yesterday’s other six winners.

The rally propelled the average to another record high, its first since last Wednesday, March 6, 2013, but the twentieth in the cyclical index in just the last two months!  Today is number twenty-one!

• Wednesday‟s rally in the Dow Jones Transportation Average was broad-based: Nineteen of the twenty components included in the index finished higher. Moreover, the top relative contributors to yesterday‟s  rally and record high in the price-weighted average represented a good cross-section of the sub-sectors included in the index:

 

Truckers J.B. Hunt/JBHT and Ryder Systems/R, both non-rated, ranked among the top drivers of the 1.63% surge.

Likewise carrier Alaska Air Lines/ALK and global transportation bellwether Federal Express/FDX .

Alaska Air Lines/ALK and Federal Express/FDX are also non-rated.

 

• The Dow Jones Transportation Average was not the only one of the nine indices that we track to post a record high on Wednesday:

The Russell 2000 and Value Line Index also earned that distinction.

The record high in the small-cap Russell, continuing to respond to the recent spate of „blowout‟  reports on the U.S. economy, was the fifth in a row, the record high in the Value Line the fourth!

 

BREADTH:

Breadth on Wednesday‟s rally was positive across all of the broader trading venues that we track. The positive breadth confirmed the advances in the respective cap- and float-weighted indices.

Ratios across the broader venues ranged from a positive 1.4:1 in the NASDAQ Composite to a positive 2.0:1 in the Standard & Poor‟s 500.

 

VOLUME:

Breadth may have validated Wednesday‟s rally, but volume fell woefully short of confirmation:

 

• According to Bloomberg, only 539,570,000 share of common stock traded on the New York Stock Exchange on Wednesday, nearly twenty percent fewer than the average over the preceding fifteen days. 

•  In addition, yesterday‟s volume was disproportionately concentrated in stocks that finished lower. Breadth on the New York Stock Exchange was a positive 1.6:1, but volume in winners exceeded volume in losers by a narrower margin of only 1.3:1.

 

SECTOR SCORECARD:

Sector-wise, Wednesday‟s action was mixed, both relative and absolute:

• Five of the ten major industry groups represented in the Standard & Poor‟s 500 finished higher, five lower.

• Four of Wednesday‟s five winners gained more than and thus outperformed the parent. Six, including technology, one of yesterday‟s five winners but which gained less than the parent, underperformed.

• Cyclical and defensive sectors of the market were equally represented among Wednesday‟s superior and sub-par performers:

 

The industrial sector, cyclical and one of Tuesday‟s worst performers, relative and absolute, was yesterday‟s  top performer, gaining 0.45%, more than three times  as  much  as  the  parent.  On  the  other  hand,  basic  materials,  equally cyclical but perhaps again reeling on the latest rally and new recovery high in the dollar, was Wednesday‟s weakest sector, losing 0.46%, one basis point more than the industrials gained.
Utilities, ultra-defensive as well as rate-sensitive, joined Wednesday‟s circle of relative winners, underperforming the cyclical industrials, but gaining nearly three  times  as  much  as  the  parent.  However,  telecom services,  equally defensive and  rate-sensitive, was  yesterday‟s  second  weakest  sector, falling 0.43%, only three basis points less than basic materials.

 

• More broadly,  two  of Wednesday‟s  superior performers  were cyclical, two defensive, four of the six sub-par performers cyclical, two defensive.

FEBRUARY 2013 U.S. RETAIL SALES

As noted at the top of today‟s report, February 2013 U.S. retail sales, reported yesterday morning, were surprisingly strong. Details of the report included the following:

 

•  Nominal retail sales in the United States increased 1.1% in February.

•  The 1.1% month/month gain was the biggest in five months.

• The increase, which, as already observed, represented the seventeenth report on the U.S. economy in little more than two weeks to „beat the street,’ surprised all eighty-two economists who participated in a Bloomberg poll.

Sales grew more than twice as fast as the 0.5% consensus estimate in the poll.

Growth even surpassed the highest estimate in the poll, an even 1.0%.

 

• The increase demonstrated that American households are coping not only with the 2013 two percent increase in the employee payroll tax, but also with higher gasoline prices:

Gasoline sales surged 5.0% in February, the most since last August 2012.

 

Gasoline sales as a percentage of total retail sales, as low as 10.82% as recently as this past December, soared forty-three basis points to 11.31%, the highest since last October.

 

The increase in gasoline receipts was directly traceable to a substantial month/month increase in price. According to the AAA, the price of a gallon of regular unleaded gasoline averaged $3.67 in February, nearly eleven percent more than the $3.32 average in January. But the American consumer didn‟t flinch.  Not  even  a  bit!  On  the  contrary,  sales  ex-gasoline  grew  0.6%  in February, more than three times as fast as in January when, as just noted, gasoline prices were not higher, but substantially lower, draining less not more from disposable incomes.  Moreover, the 0.6% increase was broad-based with sales growing in seven of the other twelve product categories surveyed by the Commerce Department.  Well, perhaps it‟s the so-called “wealth effect,” that “feel good” state of mind created by increasing household net worth that often leads die-hard American consumers to spend and spend.