Stocks Rallying Ahead of NAPM Data

Stocks are preparing for a bit of bounce this morning, based on expectations of a benign National Purchasing Manager's Index, to be reported at 10:00 a.m. EDT, and optimism following lighter-than-expected profit-taking yesterday.

Jobless claims for the week ended May 27, released at 8:30 a.m. EDT, came in relatively cool this morning, at 286,000 versus forecasts of 282,000 and the previous week's 285,000, something Jim Volk, co-director of institutional trading at D.A. Davidson, said could be giving a little bit of boost to futures.

At 9:09 a.m. EDT, the S&P 500 futures were up 11.3 points, about 9 points above fair value and an indication of some buying pressure for the early going. The Nasdaq 100 futures were showing muscle, up 69 points, indicating some strong buying interest for large-cap tech stocks at the open.

The Treasury market was edging back up this morning after losing ground earlier. The 10-year note was up 2/32 at 101 19/32 and yielding 6.274%.

"I think we have better tone to the market again today," said Volk, "We had sharp rally Tuesday and the small amount of profit taking relative to Tuesday is giving people courage," he added.

Tuesday saw the biggest one-day point gain on the Nasdaq in its history, and the other major indices got some legs as well. Yesterday, many observers expected some serious profit-taking, but indices floated in and out of green and red all day, ending only slightly in the red.

Some market observers are also taking heart from strong breadth during Tuesday's rally, when advancers beat decliners at nine to one. Despite poor volume, they say, this indicates an absence of sellers rather than buyers for the first time in a long time and could mean that the worst is finally over.

Volk said the market is also optimistic about today's NAPM number.

"People are looking for a benign NAPM after yesterday's Chicago index. In the intermediate term, markets still have to go down from here, if not test their lows, but I think we at least have a tradable rally here," Volk said.

According to Reuters' consensus estimates, the NAPM index is forecast to come in at 55.3 versus a previous 54.9. A number over 50 indicates an expanding manufacturing sector, while a number under 50 represents declining factory activity.

On Tuesday, the market was hit with a hot consumer confidence number, but a slew of cool numbers yesterday, including the Chicago Purchasing Manager's Index, which helps predict the NAPM report, April new home sales and the Redbook Retail Average, helped to relieve some inflation fears.

Still, a hot number could slaughter remaining bull spirit. And really, today's NAPM report is just a precursor to tomorrow's all-important employment numbers. For Reuters' consensus estimates on tomorrow's data, see the Economic Databank.

Wall Street has been waiting for some real data since the Federal Open Market Committee raised rates by 50 basis points at its May 16 meeting, and anxiety over the direction of the economy has taken off in the last week, generating violent swings and record-breaking up and down action.

What the market really wants to know is whether six interest-rate increases thus far have really put the brakes on the economy and how much higher interest rates will fly. The FOMC will meet again in mid-June, when it will announce any new rate increases. Many observers are saying expectations of another 75 basis points have already been priced into the market, while estimates of what the Fed will do before the end of the year range from between a 50 to 100 basis points increase.

April Construction spending is also due at 10 a.m. EDT today. Construction spending is expected to remain unchanged at 1.4%.

The large European bourses were building steam at midsession.

The Paris b 40 was up 111.86, or 1.74%, to 6538.12, while Frankfurt's Xetra Dax was 129.00 higher, or 1.81%, to 7238.67.

Across the channel, London's FTSE was up 85.1, or 1.34%, to 6444.4.

The euro was trading back down at $0.9332.

Asian markets were mixed overnight, though some of the region's most important markets were able to shrug off volatility and selling on Wall Street Wednesday, surprising some traders with a second straight up day.

South Korea's Kospi index was up 6.61 points or 0.9% to 738.49, while Taiwan's TWSE index fell 96.89 points or 1.1% to 8842.63

Hong Kong's benchmark Hang Seng index bounced around, but then strengthened toward the finish, closing up 227.33 points or 1.6% at 14,941.19.

In Japan, the Nikkei index closed up 361.85, or 2.22%, to 16694.30.

In Tokyo currency trading, the dollar rose against the yen amid new problems in Japan's financial industry, closing around 108.66 yen. The greenback was recently fetching 108.64.

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