Friday the 13th turns out to be a lucky day for investors. After a sell-off early in the week, the market essentially ended the week at the unchanged level mainly due to a sharp rebound in today’s trading. The Dow advanced 165 points or 1.4% while the Nasdaq gained 50 points. We got some mixed news on the economic front. The headline CPI increased 0.6% after a 0.2% gain in the previous month. Economists were looking for an increase of 0.5%. Excluding food and energy, core CPI increased 0.2%, matching economists’ expectation. For the past 12 months, CPI increased 4.2% while the core CPI advanced 2.3%. In another report, the Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.7 in June, the lowest in 28 years and down from 59.8 in May. But apparently investors were willing to look past the dismal consumer confidence data today and instead focusing on positive developments in the US dollar and crude price.
Commodities and technologies were among the biggest gainers of the session. Financials, lagging the broad market most of the day, moved into positive territory during the last hour and gave the market a further boost. The US dollar index enjoyed its biggest weekly gain in years this week by moving up 2.3%. As for the euro, it advanced 2.6%, the biggest increase in 3 years and for the yen, it rose 3.2%, the most in almost 4 years. Interestingly, a dollar heaven didn’t result in a commodity hell. The CRB commodity index actually ended the week up by 1%, supported mostly by agriculture products. Treasuries, on the other hand, were not that lucky. The yields on 2-year note jumped 65 bps this week, the biggest 1-week increase in 26 years. The yields on the 10-year note fared a little better but it also jumped 34bps, the most in 5 years. Clearly, bond traders have increased their bets that the Fed is going to increase interest rates much sooner than originally thought. The market breath was positive today and the volume was light compared to previous few days.

Heading into today’s trading, there were ample signs of over-sold condition around and a rally seemed to be a sensible conclusion. Indeed, we got one this morning. However, the rally was so short-lived and by the end of the closing, stocks gave back most of the early gains. In fact, none of the three major indices managed to advance more than 0.5%. It was certainly disappointing to bulls considering the Dow was up as much as 180 points earlier. We had some mixed economic news this morning. Start with the weekly initial jobless claims. The number came at 384K, a jump of 25K from the previous week’s revised figure of 359K and higher than 370K expected. In addition, continuing claims moved up by 58K to a 3.139 million, a new high in this round of economic weakness. Move on to retail sales. Here we got some surprisingly good numbers. The headline retail sales for May jumped 1%, the most in 6 months and double what economists expected. Excluding auto sales, the increase was more impressive at 1.2% pace compared to 0.7% expected. The previous month’s figure was also revised higher from negative 0.2% to positive 0.4%. It seems that the tax-rebate checks are working, at least for the month of May.
Energies were among the biggest losers for the session despite a late-afternoon rebound in crude oil. Financials were paring some of the recent losses following management changes in Lehman Brothers. The CRB commodity index was little changed. It is worth noting that the Baltic Dry Index(BDI) tumbled almost 1000 points or more than 8% in a single day with the Cape index down more than 15%. Could it be the beginning of a sharp correction in the closed-watched shipping index? The US dollar was higher against most major currencies. Treasuries continued the recent slump with the yields on the 10-year notes climbing to the highest level this year. In fact, traders started to bet that there is a small chance the Fed may increase the interest rate in the June meeting. The VIX index eased from a run-up in the past few days while the market breath was neutral.

Bears are back in the driver’s seat after two relatively quiet sessions. All three major indices ended the day lower by at least 1.5%. Surging oil price, which advanced more than $5 a barrel, again became the suspect behind today’s sharp sell-off. Continuous weakness in the key financial sector only made things worse. The Fed’s latest Beige Book offered little surprise. Three of the 12 regional Fed banks reported “softer, weaker or lower” growth and four had “slower, sluggish or modest” expansion. The rest five areas reported condition as “stable or little changed”. It essentially means that although the growth rate is slowing, there is also no clear evidence of contracting. However, manufacturers in several regions did report that they were able to pass on higher raw material costs to customers, a sign that inflation may potentially become a more serious issue in the next few months. 
Energies were the only major sector that managed to post a gain. On the losing side, we had familiar names such as financials and transportations. Actually the latter experienced the biggest 1-day decline in at least 5 years. The CRB commodity index, led by agriculture products and energies, surged another 2.7% and closed at a new high. One reason behind the rally in commodity price is weakness in the US dollar, which gave back some gains from the previous two days. Treasuries rebounded from recent loss while yields dipping across the curve. The VIX index jumped another 4% but remained too low to trigger a capitulation rally. The market breath continued to be negative and it was worth noting that we already had four straight sessions with up issues ratio below 35%. The last time we had similar situation was back on July 23, 2002.

For the second day in a row, the market ended the day in a mixed fashion. The Dow, buoyed by strong performance in Coca-Cola, was up fractionally while the other two major indices were lower modestly. The news on the economic front was more or less in line with expectation. Trade Balance for April came at a deficit of $60.9 billion, up from $56.5 billion in the previous month. However, after adjusting the numbers for inflation, the trade deficit shrank to $46.9 billion, the lowest in almost 5 years. It looks like narrowing trade deficit will give the economic another boost in the second quarter.  
Actually some of the most significant news these days was outside the equity market. Late yesterday, the Fed Chairman Bernanke said in a speech to a Boston Fed conference that “central bankers will strongly resist an erosion of long-term inflation expectations”. The statement essentially means that the Fed may raise the interest rates much sooner than what the market is currently expecting. As a result of his speech, the US dollar jumped by more than 1% against the euro(apparently there is a race between the ECB president Trichet and Bernanke when it comes to who will be the first to increase the interest rate as similar comments by Trichet last week boosted the euro almost 3% back then). Treasuries and commodities were two unfortunate victims of Dr. Bernanke’s speech. The yields on 2-year treasury notes jumped another 21 bps following yesterday’s 33 bps advance, marking it the biggest 2-day jump in at least 20 years. Traders are now betting more than 50% chance that the Fed is going to raise interest rates as early as its August meeting. Gold price dropped almost 3% following a stronger dollar and crude oil had a volatile session before finishing the session lower by another 2%. The VIX index changed little from yesterday. The market breath continued to be negative.

The market ended the first trading session of the new week in a mixed fashion. The Dow added 70 points after losing nearly 400 points last Friday and the Nasdaq, dragged by several big tech names, posted a loss of 0.6%. Interestingly, just when almost everyone was pessimistic on the outlook of housing, we got some good news on that troubled sector. The pending home sales for April rose 6.3% while economists were looking for a drop of 1.0%. Although one month data doesn’t constitute a trend, it nonetheless would give some hope to those looking for the bottom of the housing market. However, continuous weakness in the financial sector completely offset the good economic news and even a $4 drop in the crude price couldn’t help matters.
Commodities especially energies were among the biggest gainers of the session. Energy stocks simply treated today’s drop in crude price as a temporary event. The CRB commodity index gave back 1.4% following a huge run in the previous week. But the biggest news of the day was probably in the treasury market, which in the wake of possible sooner-than-expected rate hike, saw the yields on 2-year notes jump 34 bps, the most in 12 years. Across the Atlantic, UK 2-year notes also tumbled the most in 10 years as traders bet that BOE is going to raise interest rates sooner than originally expected. The US dollar moved higher against most major currencies. The VIX index retreated a little bit after topping 24 earlier. The market breath was negative on both the NYSE and the Nasdaq.