Reply #71: crapweasel blather to go with those numbers

[UpInArms]

4:25 pm : Readers may recall that the stock market flip-flopped on Tuesday, rallying in the early-going and then selling off into the close. On Wednesday it was just the opposite. Stocks languished in the early-going amid concerns about credit market liquidity and a worse-than-expected January CPI report, but eventually turned things around and advanced in the afternoon trade.

The performance was remarkable as there seemed to be some legitimate reasons for participants to assume a bearish view of matters and to maintain that view throughout the session.

News that KKR Financial Holdings, the publicly traded credit fund of Kohlberg Kravis Roberts & Co., had delayed repayment of its asset-backed commercial paper debt for a second time, and was involved in restructuring talks with creditors, sparked concerns about liquidity in the credit market that took a heavy toll on foreign markets.

This news, however, soon took a backseat to the CPI report, which revealed a 0.4% increase in total CPI for January and a 0.3% increase in core-CPI, which excludes food and energy. Both numbers were slightly ahead of expectations that called for increases of 0.3% and 0.2%, yet the year-over-year increases of 4.3% and 2.5%, respectively, are what really grabbed the market's attention.

The initial reaction was understandably negative as the report fueled inflation concerns and suggested the FOMC might not be as aggressive with future rate cuts as had been previously anticipated.

On a related note, the FOMC Minutes from the January 29-30 meeting indicated that members felt inflation expectations would remain reasonably well anchored. Still, it was not lost on the market, which saw oil prices top $100 again in Wednesday's trading, that the Fed raised its core inflation forecast for 2008 to 2.0% to 2.2% from 1.7% to 1.9%. The Fed also cut its 2008 GDP forecast to 1.3% to 2.0% from 1.8% to 2.5%.

The takeaway for the market was that the updated forecasts continue to support the view that further rate cuts remain likely. Accordingly, the stock market pressed higher following the release of the minutes.

In a separate release, it was reported that Housing Starts rose 0.8% in January. That seemingly good news was offset by the realization that starts had dropped 21% over the prior two quarters and that building permits slipped 3.0% to a 16-year low of 1.04 million units on an annualized basis.

After digesting the economic data, the stock market found a bullish stride that was helped along by the outperformance of the financial and technology sectors, which rose 1.6% and 1.7%. At the same time, the lack of follow through selling pressure after the negative open led to some bargain hunting activity that, in turn, forced some short covering that aided in the market's turnaround.

Other leading sectors included energy, which gained 1.5%, and basic materials, which jumped 1.2%.

Dow component Hewlett-Packard (HPQ 47.44, +3.49) provided its fair share of support for the broader market as it got a healthy 8.0% boost following its better than expected fiscal first quarter earnings report and full-year outlook. Its good news trickled down to other tech stocks that resulted in technology being the best-performing sector on the day.

Telecom services remained a drag, however, as it slipped 2.9%. Verizon (VZ 35.24, -0.10) and AT&T (T 34.36, -1.53) led the retreat, having been hit by a Credit Suisse downgrade of both stocks to Neutral from Outperform.

Strikingly, the defensive-oriented sectors consumer staples, health care and utilities underperformed today in a trade that was driven by more growth-oriented issues.DJ30 +90.04 NASDAQ +20.90 NQ100 +1.3% R2K +1.1% SOX +2.7% SP400 +1.4% SP500 +11.25 NASDAQ Dec/Adv/Vol 1249/1696/2.29 bln NYSE Dec/Adv/Vol 1198/1936/1.43 bln