The Citigroup rally: The market made its first big move upward in weeks Tuesday after Citigroup Inc. said it had operated at a profit during the first two months of the year and its CEO said he was confident about its capital strength. All the major indexes soared more than 4.5%, and the Dow Jones industrials shot up more than 300 points. Shares of Citigroup, in which the government recently took a large common equity stake to help shore it up, jumped 35.2 percent to $1.42.
The Fed is sounding cautiously optimistic: Federal Reserve Chairman Ben Bernanke said Tuesday there's a "good chance" the U.S. recession could end this year if the government is successful in getting financial markets to operate more normally again. The recession, now in its second year and already the longest in a quarter-century, has turned out to be more severe than anticipated, he acknowledged after his speech to the Council on Foreign Relations. In the same speech, he said the nation's financial rule book must be rewritten to prevent a repeat of the global economic crisis now gripping the world. "We must have a strategy that regulates the financial system as a whole ... not just its individual components."
Insider buying is bullish: For the week ending Tuesday, March 3, the Insider Sentiment score is bullish, with its 4th highest reading ever. (This score measures insider sentiment based on both buying and selling transactions reported during the trailing week.) In each of the three previous instances where the weekly score recorded a higher reading, insiders correctly called a near-term bottom to the market. This most recent reading was the result of high levels of buying and extremely depressed levels of selling. Buying has been broad based, with sentiment in the healthcare, services, basic materials, industrial goods, consumer goods and utilities sectors all showing marked improvement in recent weeks. This past week's surge was also a function of increasingly bullish sentiment at companies in the S&P 500 index. Meanwhile, sentiment within the Russell 2000 has improved for seven consecutive weeks and the weekly score for the index was the sixth-highest reading ever. Sentiment in the Wilshire 5000 excluding the financial sector has turned around and is now very bullish. An interesting example: Billionaire board member Barry Diller bought $20 million in shares of The Coca-Cola Company, which was his first open-market buy there since he joined the board more than seven years ago. His purchase came as shares of Coke approached a four-year low despite a solid 4th-quarter earnings report last month.
Some big guys are raising dividends and resuming buybacks: Wal-Mart is resuming its share buyback program AND plans to raise its dividend. Wal-Mart plans to start buying back stock before the end of April, which is when its first quarter ends. It has $5 billion left of a $15 billion authorization from May 2007. It is one of the first companies to resume buybacks after putting them on hold late last year when it became clear the economy was deteriorating. At the stock's current price of around $49.60, Wal-Mart could buy back about 100,000 shares with the remaining $5 billion, leaving its public float at 2.3 billion shares. The other step Wal-Mart is taking to make its shares more valuable to stockholders -- increasing its dividend -- will return $4.2 billion to them in the current fiscal year. The 15% boost to $1.09 per share annually is more than twice the current average dividend increase of 7%, according to Standard & Poor's Corp.
In addition, telecom giant Verizon has publicly promised to keep growing the dividend it pays to shareholders, Qualcomm Inc. raised its dividend by 1 cent and several others have joined the dividend hike trend -- General Dynamics (up 8.6%), Coca Cola (up 8%), Kimberly-Clark (up 3.4%), Colgate-Palmolive (up 10%) Novartis (up 25%) and Avon (up 5%), to name a few.
Retail figures are not as bad as they have been or as bad as expected: While February retail sales fell, the decline was not nearly as much as in January - possibly indicating that business could be stabilizing. The tally by the International Council of Shopping Centers and Goldman Sachs showed that sales at stores open at least a year (same-store sales), slipped 0.1% in February, less than the 1-2% drop that was forecast. While it was the fifth monthly drop in a row, it was a marked improvement from January's 1.6% drop.
Manufacturing decline not as bad as expected: A private measure of the manufacturing sector's health for January rose from a record low, but still posted the 12th straight month of contraction amid the global recession. The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index rose to 35.6 in January from an upwardly revised 32.9 in December. The January reading was above the 32.6 that economists surveyed by Thomson Reuters expected. Any reading above 50 signals growth, while a reading below 50 indicates contraction. The index has fallen steadily since August as the economy deteriorated, hitting a 28-year low in December. The report covers such indicators as new orders, production, employment, inventories, prices, and export and import orders. The index continues to show significant deflation of the prices manufacturers must pay for materials, which ultimately should help consumers.
Productivity is up: Productivity accelerated sharply last quarter despite the steepest economic contraction in more than 25 years, a sign of how quickly companies have responded to the recession by cutting back on labor at the fastest rate since the mid 1970s. Non-farm business productivity jumped 3.2%, at an annual rate, in the fourth quarter, the Labor Department said, well above the 2% increase economists in a Dow Jones Newswires survey had expected. Productivity rose 2.8% on average during 2008 -- the highest in five years -- and was up 2.7% compared with the fourth quarter of 2007. Those figures are above the average 2.5% growth rate between 2000 and 2008. Unit labor costs -- a key gauge of inflationary pressures -- increased just 1.8%, at an annual rate. Wall Street economists had forecast a 3% increase. Labor costs were up just 0.7% from a year earlier, an indication that the economic slowdown and weakening jobs market is making it hard for workers to command higher wages.
Some banks have given back the money: Five banks ranging from small to large have given back (or canceled applications for) the TARP funds that the government insisted they take last year - IberiaBank, Sussex Bancorp, Red River Bank, Northern Trust and US Bancorp. In addition, $300 billion of the TARP funds allocated last year by Congress has yet to be allocated. (TARP, the Troubled Asset Relief Program, is a program of the U.S. government to purchase assets and equity from financial institutions to strengthen its financial sector. It is the largest component of the government's measures in 2008 to address the subprime mortgage crisis.)
Baltic Dry Index shows promise: This index, one of the purest leading indicators of economic activity, is triple from its late 2008 low of about 750. While it remains off its all-time high (over 10,000), it points to more economic activity. The Baltic Dry Index is a daily average of prices to ship raw materials, which represents the cost paid by an end customer to have a shipping company transport raw materials across seas on the Baltic Exchange, the global marketplace for brokering shipping contracts. The exchange maintains prices on several routes for different cargoes and then publishes its own index, the BDI, as a summary of the entire dry bulk shipping market. This index can be used as an overall economic indicator as it shows where end prices are heading for items that use the raw materials that are shipped in dry bulk. Unlike stock and commodities markets, the Baltic Dry Index is entirely without speculative players because it is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it.
Promising news on housing: The National Association of Realtors' seasonally adjusted index of pending sales for previously owned homes for December rose 6.3% to 87.7 from an upwardly revised November reading of 82.5, which was the lowest month on record. That's better than the 82.3 reading economists expected, according to a survey by Thomson Reuters. The reading also was up 2.1% from December 2007. Typically there is a one- to two-month lag between a contract and a done deal. Home sales that were pending in December are likely to be completed in the coming weeks.
In addition, mortgage finance company Freddie Mac said it will allow some borrowers to rent out their homes after losing them to foreclosure. This will prevent properties from becoming vacant so they won't fall into disrepair. Freddie Mac also said it will allow renters to remain in their homes even if their landlord enters foreclosure. "Keeping foreclosed properties occupied and in better repair will support local property values and promote a faster recovery in the housing market," said Freddie Mac Chief Executive David Moffett.
In the meantime, first-time homeowners and investors are swooping in, taking advantage of depressed prices and in some cases scoring properties that will allow them to pay less to own than they did to rent. As a result of this, while foreclosures were up on a year over year basis in Florida, Nevada, Arizona and California in January, they were down on a month over month basis (January vs. December) in these four states. Thes states were ground zero in the housing bubble and
Cash positions may signal a time to buy: At the beginning of the year, a survey by the American Association of Individual Investors (AAII) showed that for the first time in that poll's 20-year history, its members put more money into cash than stocks. There were two other months that came close, and both were excellent long-term buy signals for the stock market. Currently there is over $4 trillion in money market mutual funds that could easily be shifted into the Stock market. Compare that with the $1.1 trillion in value lost during the bear market and you can imagine how powerful that cash may be if even a fraction of it is invested in stocks.