Positive Economic Data Provides Small Boost For Stocks

The market is slightly higher in early trading after some positive economic reports. Also, the IMF has upgraded its view of the U.S. economy, while the American Bankers Association said it now thinks the U.S. economy will emerge from recession in Q3 of this year. That would be a welcome sign indeed.

In economic news, the May PPI figures came in below expectations, suggesting little inflationary pressures right now. Moreover, capacity utilization was in-line at 68.3%, but this figure needs to move much higher before we need to worry about inflationary pressures.

Housing starts were much better than expected (+17%), and building permits were above consensus as well. These figures bode well for a housing bottom, even though there are still those who feel that housing starts need to stay low to work off the current inventory glut.

Not much in the way of corporate news. Best Buy (BBY) topped expectations, but offered 2010 EPS guidance within a wide range from $2.50 - $2.90, vs. consensus of $2.79. Weekly retail sales were down -4.6%, which marks the worst 2-week slide since 1996. Not a great datapoint for the state of the consumer.

Asian markets were lower overnight amid concerns about the economic recovery. But the Bank of Japan upgraded its view of the Japanese economy; the dollar is lower this morning, helping boost gold and commodities; the 10-year yield is higher at 3.73%; and the VIX is flat near 30.80, after a big spike higher yesterday.

Trading comment: I didn't make any trades yesterday. The market was sharply lower on a rise in volume, which isn't saying that much considering how low volume was on Friday. This week is options expiration, so we should expect some increased volatility. Also, the market is now back into oversold territory, but only slightly. Nonetheless, I still think that it sets us up for another push higher into quarter-end.

I will be watching investor sentiment if such a push higher develops. If the market is unable to breakout above its recent highs, and if investor sentiment grows overly bullish, it could be time to take some chips off the table for the summer.