Despite the advantages of solid bouncebacks in Asian and European markets on
Wednesday, U.S. stocks couldnt hold up, with a fast fade that had equities
dancing around the flatline for the rest of the trading session. By days end,
the Dow Jones Industrial Average gained 17 points to 12,271, the Nasdaq rose 17
points and the S&P 500 was essentially flat at 1314. Of course, it wasnt just
overseas markets that were providing the early push. A quarterly earnings report
by JPMorgan Chase (NYSE: JPM ) before the opening bell offered an early help to
financial stocks, which havent exactly been on a tear in 2011. In fact,
following the eventual decline in financials on Thursday, the SPDR Financial
Select Sector (NYSE: XLF ) exchange-traded fund is essentially where it closed
on Jan. 3, the years first day of trading which included a Happy New Year rally.
A note from JMP Securities later Wednesday delineated the shortcomings in
JPMorgans report, namely that its traditional banking business is a slave to
wouldnt you know it the economy. Turns out that the mortgage business continues
to be a mess and economic conditions are somewhat lackluster. If this is typical
sentiment for the sector that everyone saw as the ultimate winners (or
nonlosers) of the recent recession and crisis, its no wonder that a 28% stock
runup from last September through February now seems at a crossroads. So, if a
mega-bank like JPMorgan is a cyclical play, as JMP Securities called, it where
are we in the economic cycle? Cue the Feds Beige Book report, released
Wednesday, which pronounced its officially, well, better than it was. The 12
reporting districts found that economic activity generally continued to improve
since the last report. Thats the good news. On the other hand, most districts
found little change in their residential real estate markets, with some
districts even pointing to weakening. The question is whether economic
lacklusterness is a condition that can continue justifying the current levels
for stocks. More clarity will certainly come with the onslaught of first-quarter
earnings reports over the next four or five weeks. For now, the signal from the
companies that hold all the money banks doesnt inspire much near-term
confidence.
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