Stocks, Dollar Bounce In Early Trading

The market is higher in early trading, though the gains feel tenuous. Alcoa (AA) kicked off earnings season last night with a weak report, missing consensus estimates. Their results highlight the challenging conditions still present in the broader economy.

Biotechs are leading the way so far, with a big industry conference underway. Retailers are lagging, amid continued concerns about consumer spending.

Infosys (INFY) reported a strong quarter, and its stock is +7% higher this morning. Also, Reuters is reporting that Sony (SNE) may report its first operating loss in 14 years.

Financials have been very weak the past few days, with many stocks approaching their November lows. There is growing angst on Wall St. about how big the Q4 losses will be for the big banks, and this issue could be keeping the banks from increasing lending like the Administration wants them to.

Asian markets were down overnight, with Japan falling -4.8% after being closed for a holiday. The dollar is higher this morning, after the November trade defecit came in better than expected at $40.4 billion (vs. $51.0 billion consensus).

The strong dollar is weighing on commodities, but oil is bucking that trend and trading higher, near $38.50. The 10-year yield is also a bit higher to 2.33%. And the VIX is -3.5% lower so far to 44.24, after a big spike higher yesterday.

Trading comment: The S&P 500 closed below its 50-day average yesterday, which isn't a great sign. But the real support comes in around SPX 860, which has held so far. The market has pulled back -8% in just 4 days, so a bounce is in order.

I have not written much about the more esoteric indicators that I follow, such as the LIBOR rates, 2-yr swap spreads, CDSs, etc. But suffice it to say that they have all come down by huge amounts in the last couple months. This means that credit market angst is waning, and confidence returning. If this confidence can spread to the stock market, it should translate into higher multiples for stocks at some point. As always, timing is the key.

long SSO