Stocks’ Fast Start Fizzles Out

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InvestorPlace
Despite the advantages of solid bouncebacks in Asian and European markets on Wednesday, U.S. stocks couldn’t hold up, with a fast fade that had equities dancing around the flatline for the rest of the trading session. By day’s 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 wasn’t 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 haven’t 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 year’s first day of trading which included a Happy New Year rally. A note from JMP Securities later Wednesday delineated the shortcomings in JPMorgan’s report, namely that its traditional banking business is a slave to — wouldn’t 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, it’s 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 Fed’s Beige Book report, released Wednesday, which pronounced it’s officially, well, better than it was. The 12 reporting districts found that economic activity “generally continued to improve” since the last report. That’s 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 — doesn’t inspire much near-term confidence.