Tuesday, March 5, 2013

Dow at second-highest nominal close despite risk of sequester causing recession

The Dow Jones Industrial Average (DJIA) has climbed to another milestone since I wrote Stocks climbing a wall of worry with lots to worry about.  As The Wall Street Journal's Marketwatch blog proclaimed, Stock gain lifts Dow average to 2nd highest level.
U.S. stocks closed higher Monday, with the Dow Jones Industrial Average closing at its second-highest level ever, after strength in defensive stocks shook off early morning losses following a measure to cool China’s real-estate bubble.

The Dow Jones Industrial Average  rose 38.16 points, or 0.3%, to its second-highest close of 14,127.82, about 37 points below its record close of 14,164.53 set in Oct. 9, 2007. The index was down as low as 14,030.37 earlier in the session.

Shares of Wal-Mart Stores Inc. led the index higher, rising 2.1%, followed by gains in Home Depot Inc. and Merck & Co.
Funny that Wal-Mart's name should appear in today's news.  The chain is playing a starring role as the battleground in a fight between Kunstler and conservative leader Gary North the past two weeks.  Given what Kunstler has had to say about Wal-Mart lately, that it led the stock market up today is ironic.

I'll get around to that kerfuffle in a future entry.  Right now, it's time to get back to Marketwatch.
The S&P 500  rose 7 points to close at 1,525.20, just 2.6% below its all-time close of 1565.15, hit on October 9, 2007. Utilities, a sector considered safer in times of economic turbulence, led the index higher, and consumer staples also gained. Industrials and energy were the hardest hit among the index’s 10 sectors. The index touched an intraday low of 1,512.28.

The Nasdaq Composite advanced 12.29 points to close at 3,182.03...
All of these gains are happening even as the sequester is beginning.
For the most part, it’s a day where the market doesn’t have a lot of news to hang onto for direction: That’s more likely to come at the end of the week with the monthly jobs numbers, Wren said. All in all, stocks are in an uptrend, and investors are not convinced that sequester — or mandatory federal spending cuts — will do much harm now that the Federal Reserve has signaled its will have the markets’ back for an extended period of time, he said.

“Markets are pretty convinced we’re not going to see major entitlement reform or spending cuts,” Wren said.
Economist Nouriel Roubini, who earned the nickname “Dr. Doom” after predicting the 2008 financial crisis, told Bloomberg in an interview that investors appeared to be underpricing the risk associated with the threat of a deeper euro-zone recession and the possibility that U.S. growth could slow in the second half due to tighter fiscal policy.
“I can’t get away from the sense that U.S. political protagonists quite like the idea of some fiscal tightening that they can blame on ‘the other guys,’” said Kit Juckes, head of foreign exchange at Société Générale. “But the sequester cuts 2013 GDP forecasts by between 0.2% and 0.5% and fuels the risk-averse mood as we await payrolls on Friday.”
So if the seqester, which is just the child of the Satan Sandwich, isn't holding the stock market down thus far, what's allowing it to rise?
Federal Reserve Vice Chair Janet Yellen on Monday said the central bank shouldn’t scale back its easy policy stance...

“At present, I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment,” Yellen said in a speech to the National Association for Business Economics in Washington.

Her remarks come after Fed Chairman Ben Bernanke warned late Friday that a premature exit from the central bank’s aggressive monetary-policy easing campaign could backfire.
Helicopter Ben and his colleagues at the Fed, that's who.

Time to revisit my previous prediction.
The Dow still hasn't reached a new nominal record, so the market could still sputter out just short of the level, although I'm beginning to suspect it might just make it and then start declining as a result of the sequester that will result if the latest installment of the Satan Sandwich/Fiscal Bluff isn't resolved.
Looks like my backup position is likely to come true.  It's also why the sequester won't be resolved any time soon.  As long as it doesn't worry Wall Street, who seems to like it, it won't worry the politicians.

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