US STRATEGY - “I could go on and on”

“There is clear and broad-based improvement in the economic factors in the United States and around the world”

-JPM CEO Jamie Dimon said yesterday in talking about the economy 

The S&P 500 finished higher by 1.1% on Wednesday, with the average up 11 of the last 13 days.  The earnings calendar was the driver of yesterday’s performance, with better-than-expected results out of the Financials (XLF) and Technology (XLK) - two of the three best performing sectors.  Rounding out the top three was consumer discretionary (XLY). 

The MACRO calendar was another bright spot for some, as inflation appeared subdued and the resilient consumer is Omnipresent.  Lastly, despite JPM’s blow out earnings and positive economic commentary, Fed Chairman Bernanke reiterated today that rates will remain low for an extended period. 

The speculation that China would print a better-than-expected Q1 GDP was correct, which continues to help support the RISK/RECOVERY trade. 

Yesterday, the Financials (XLF) were the best performing sector, as the banking group resumed its upside leadership today with the BKX +3.4%; the BKX is now up 34% year-to-date.  Yesterdays’ rally was largely driven by Q1 results from JPM (up 4.1% yesterday and 14.5% YTD), which beat on both the top- and bottom-line.  

To quote the CEO of JPM: “China’s growing, India’s growing, Japan is growing, home prices have stopped going down, consumers income is up, consumers are spending, service and manufacturing indexes are up, inventories are still low, I could go on and on.”  Yet, according to the FED, we still have the need for interest rates to stay at exceptionally low levels.

The Consumer Discretionary (XLY) was help by a strong retail sales number and LBO speculation in the housing group as Lennar was up 5.8%; the most since February 11th.  Retail sales rose 1.6% month-to-month in March vs. expectations for a 1.2%.  In addition, February retail sales were revised higher to 0.5% vs. the originally reported 0.3% increase.   Retail stocks also put in a strong performance, with the S&P Retail Index +1.7%.

Yesterday crude rallied 2.1% to close at $85.45, on the back of an unexpected draw in crude stockpiles. 

The commodity complex has also benefited for the dollar declining for the past four days.  The Dollar Index was down 0.39% yesterday and 1.65% over the past three days. 

Helping to boost the BETA trade yesterday was he continued meltdown in the VIX.  The VIX declined 3.8% yesterday and in now down 28% year-to-date. 

In early trading gold is trading lower, as the dollar rebounds from four down days. 

Copper prices are trading lower, despite a blowout GDP number from China. 

In early trading, equity futures are trading below fair value as Europe pares gains amid Chinese measures to reign in borrowing to curb the threat of inflation.  As we look at today’s set up the range for the S&P 500 is 23 points or 1.6% (1,191) downside and 0.3% (1,214) upside. 

On the MACRO calendar today:

  • Initial Jobless claims
  • March Empire Manufacturing
  • Feb TIC Flows
  • March Industrial Production
  • Capacity Utilization
  • April Philly Fed
  • Natural Gas Inventories
  • April NAHB Housing Market Index

Howard Penney

Managing Director