Jamie Dlugosch

A Glimpse of Encouragement

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The first of a long list of economic data to be released in January showed that construction spending fell less than expected. Non-residential activity offset losses in housing which fell by more than 4%. Of course homebuilding stocks rallied on the news as once again speculation of a near bottom buoyed investor hopes for a recovery in the long beaten down space.

Global stocks rallied over night. Japan moved up fractionally, but Shanghai was up over 3%. Singapore and Australia added close to 2% and only Hong Kong was down fractionally. European stocks were higher as autos and retailers led an opening rally. Britain, France and Germany opened up approximately 1%. In Germany luxury auto maker Porsche increased its stake in Volkswagon to more than 50%.

Mosaic announced earnings for the quarter ended November 30 that beat expectations. The fertilizer company made $2.15 per share as compared to $.89 in the year ago period. Despite the strong results the company is warning of weakness and production cuts in the current period. That makes sense given the economy decelerated at the end of the year. Shares were up yesterday after the news, but are now down slightly.

Dow futures are up more than 60 points this morning as traders look to return to the positive side of the ledger today. Volatility is decreasing and traders appear to be willing to take risk even as the economy deteriorates.

I expect a normal January effect rally that will be sustainable should economic data simply come in as now expected. The market is priced for the worst case and is now looking for clues of a pending recovery. Signs that a recovery that is slow to unfold will result in any rally fading.