Market Set for Modest Strength

It looks like we'll see a flattish morning for the stock market.

At 9:05 a.m. EST, the S&P 500 futures were down 1 point. That's still a few points above fair value and should bring some program-buying to the broad big-cap market just after the opening bell. But it's far from an unambiguously positive indication.

"The futures were a little on the sloppy side," said Jim Benning, a trader at BT Brokerage. The outlook for tech looks mixed as well, with the Nasdaq 100 futures off 13.45 to 3990.5.

You'd do well to keep your eyes on the downtrodden sectors today. Traders will be watching to see whether yesterday's dip-buying in names like Caterpillar (CAT) and United Technologies (UTX) can extend itself into a profitable short-term bounce in cyclicals, or whether the bottom-feeders turn their attention toward the ravaged financial sector. The Philadelphia Stock Exchange/KBW Bank Index is now sitting at lows not seen in almost two years.

Oil stocks could also get some action, with the price of crude still hovering above $30 a barrel.

Few on Wall Street expect significant rotation, though. "I think [yesterday] was just a little bounce in some of the old-line companies," Benning said. "So maybe the ticks will sell off a little bit. It's not that there's anything fundamentally wrong with them. It's just that there's such intense concentration on tech stocks."

Meanwhile, news that margin debt grew another 6.6% on the Big Board last month suggests that the trend toward increasing levels of speculation remains intact. Investors don't own Caterpillar in margin accounts. Leverage seeks performance, which nowadays only comes from growth or, more specifically, tech.

It's not just a tech thing, though. Debt levels that high -- margin is up 36% since September -- raise the chance of general volatility, as big downside moves in individual stocks force investors to raise money for margin calls by closing nonleveraged long positions. Every 20% decline in a stock like Infosys (INFY) thus ripples through the broader market.

The bond market was edging lower, with the 30-year Treasury off 12/32 to 99 30/32, putting its yield at 6.254%. The 10-year note, meanwhile, was down 2 ticks to 99 16/32 and yielding 6.569%.

The large European indices were coming under pressure in early afternoon trading. The Paris CAC was off 84.82, or 1.4%, to 6183.50, while Frankfurt's Xetra Dax was down 24.10 to 7620.70. And after being up as much as 1%, London's FTSE was just 9.1 higher to 6077.7.

The euro was trading modestly higher at $0.9799.

Stocks pulled back across the board in the large Asian markets.

In Hong Kong, the Hang Seng gave up 500.80, or 2.9%, to close at 16,688.16. Investors were taking profits on index heavyweights like China Telecom (CHL) and Hutchison Whampoa (HUWHY).

Japanese stocks lost ground amid intensifying worries over corporate failures. A bankruptcy filing from condominium sales firm L Kakuei's today followed the weekend collapse of supermarket chain operator Nagasakiya, while key data cited a 44% jump in bankruptcies in January from the previous year.

The Nikkei fell 188.63 to 19,367.83. The dollar hung around 108.7 yen in lethargic currency trading. It was lately sitting at 108.66 yen.

The strength in the won, trading around 1126.60 to the greenback, continues to beat up South Korean shares. The Kospi slid 31.17, or 3.4%, to 879.70.

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For a look at stocks in the preopen news, see Stocks to Watch, published separately.

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