The Market Finds Love in Unlikely Places
Following a string of debilitating declines, the stock market was primed for a rally. All that was needed was a catalyst, any catalyst. So low was the market's emotional state that less-weak-than-feared economic data proved more than adequate.
Consumer confidence declined to 108.8 in April from 110.7 in March (revised from 110.2 originally), the Conference Board reported this morning. Separately, the Chicago purchasing managers' index fell to 54.7 from 55.7 last month.
Whereas better-than-expected economic and earnings news failed to inspire buyers
last week, those reports were sufficient to send equities skyward and bonds reeling this morning. Key to the move was that consumer confidence didn't fall as much as was anticipated -- 107.5 was the consensus estimate -- and that the Chicago PMI -- which was weaker than the consensus estimate of 55 -- remained above 50 for the third consecutive month, indicating expansion in the Midwest manufacturing economy.
Other catalysts came from
IBM
(IBM) - Get Report
, which increased its dividend and authorized a $3.5 billion stock buyback program, and from news of the resignation of
WorldCom
(WCOM)
CEO Bernie Ebbers, who'd come to symbolize the telecom giant's fall as much as he'd once embodied its rise to prominence. Rumors
Merrill Lynch
(MER)
was close to a settlement with the New York Attorney General's office further buoyed traders' sentiment.
Still, the stock market's big jump was timed to the 10 a.m. EDT release of the aforementioned economic data. Building on that leap, the
Dow Jones Industrial Average
was recently up 1.7% to 9990.09, the
S&P 500
was up 1.5% to 1080.97, and the
Nasdaq Composite
was up 2.04% to 1690.7.
Given the lackluster economic news, some market participants were convinced today's stock market gains were nothing more than a bounce from oversold levels.
"I think that's what it is -- nothing changed overnight," said Anthony Cecin, manager of Nasdaq trading at U.S. Bancorp Piper Jaffray in Minneapolis. "They've been down so hard, they needed a little respite. It's a sympathy bounce."
Then there's the argument that a rally on the last trading day of the month was not surprising, given that many institutions allegedly try to goose their holdings in order to improve performance.
Cecin downplayed such notions, noting end-of-quarter shenanigans are more prominent. More noteworthy, he said, was the market's ability to ignore negative news. In addition to the fact consumer confidence fell in April, Cecin noted that
J.P. Morgan Chase
(JPM) - Get Report
is reducing its level of commitment as a provider of backup lines of credit to corporations seeking to borrow in the commercial paper market.
"I thought that'd be the big story of the day, but people are so happy the
stock market is rallying they're not going to concentrate on the negatives," the trader said. Still, "if all of a sudden big industrials can't get money to operate on a day-to-day basis, that can't be good."
The commercial paper market, a key source of short-term funds for corporate America, has become more difficult, if not impossible, for firms such as
Tyco
(TYC)
to access in recent months. Even well-heeled firms such as
General Electric
(GE) - Get Report
have been forced to increase the lines of credit used to back up such loans.
Going forward, they'll be less likely to get those loans from J.P. Morgan, which could make short-term borrowing even more difficult for many corporations.
J.P. Morgan arranged almost half the lines of credit supporting the $1.4 trillion commercial paper market,
Bloomberg
reported. The bank is backing away from such lending after extending billions to a series of troubled clients who found themselves unable to access the commercial paper market, most notably
Enron
,
Xerox
(XRX) - Get Report
and
Southern California Edison
.
I plan to follow up with more about the implications of this development in a future column, as it could portend the "credit squeeze" some market participants have suggested is already upon us.
Meanwhile, bond market participants were still feeling the pressure of yesterday's announcement that the U.S. Treasury expects to increase its borrowing by $1 billion this quarter rather than repay $89 billion, as it had previously forecast.
But the stock market was rallying at midday and the 10-year Treasury had recovered from earlier weakness, so such fixed-income issues seemed petty, for now.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.
