Monday Morning Musings

I was out of the office for the last couple of days last week but I'm back in the saddle today and liking the action.  Readers know that the one thing I always caution about is a market that opens too strong too early.  That sets the market up for selling later in the day and a disappointing close.  So we will have to watch to see if today's early strength can last into the close.  Still a lot of time left on the clock.

If you looked at the futures early this am it didn't look like we would have such a strong open.  Overnight action in Asian was mixed.  Many markets were closed for the Golden Week holiday.  The China manufacturing PMI index climbed to 49.8, but even that figure remains below the 50 line that marks the difference between expansion and contraction.  This is the second straight reading that marks contraction, something that hasn't happened since 2009.  Chinese banks are closed all week for the holiday. (can you imaging that in the US?)

Sentiment improved after Europe opened and released a string of better than expected manufacturing PMI readings.  PMI readings from France, Germany, Spain, and Italy all came in higher than expectations.  But while that gave a short-term boost to the markets, the readings remain below the 50 level we mentioned that marks continued economic contraction.  Also, the Eurozone unemployment reading ticked higher to a record 11.4%.

In the US, our ISM manufacturing index rose to 51.5 from 49.6 in August.  So our manuf sector looks a little better in the sense that it has moved back above the 50 level.  This also helped give stocks a boost in early trading, pushing the Dow up nearly 150 points to start the new month. 

In corporate news, 3M (MMM) will buy Ceradyne (CRDN) for a 43% premium to Friday's close.

The dollar is lower today, which is helping commodities.  Oil prices are higher to $93.  Gold prices are up near $1785, and silver and copper prices are higher as well.

The 10-year yield is getting a boost on the ISM data, with yields up slightly to 1.64%.  Still below the 50-day average.

The volatility index (VIX) is only slightly lower near 15.67 currently.

Trading comment: Stocks ended the last day of the quarter on a weak note, but are bouncing back today on the first day of October.  Some of today's strength could be from fund flows at the start of the month, a phenomenon that occurs far too often to be considered random.  Financials are outperforming in early trading while defensive utilities are lagging.  Tech stocks are also trailing the broader market.  But these overall sector rotations have been healthy for the market and have kept the stair-step higher pattern intact.