Market Maintains Momentum

September 17, 2009

The markets posted their seventh gain in eight sessions Tuesday, led by commodities and basic materials. Positive commentary from Ben Bernanke and Warren Buffett assisted gains.

The markets posted their seventh gain in eight sessions Tuesday, led by commodities and basic materials sectors on the heels of stronger-than-expected economic data that included the largest jump in retail sales in more than three years. The shorts just aren't gaining any ground as the market retains its daily upward momentum as no one seems to want to miss the resurgence.

U.S. equity futures are higher ahead of yet another full day of influential economic data including the CPI and Industrial Production. August CPI m/m came in at +0.4% vs. consensus of 0.3% and prior reading of 0.00%. Core CPI was +0.1%, right on target with estimates. On a year-over-year basis, core CPI rose 1.4%, in-line with consensus.

Industrial Production figure, released at 9:15 ET, confirmed the end of the contraction in the manufacturing sector as indicated by last month's ISM numbers. For the month of August, Industrial Production is expected to have risen 0.6% -- the second consecutive monthly increase driven by automobile production.

Commentary from Federal Reserve Chairman Ben Bernanke that the recession is likely over assisted gains in the markets yesterday, a move that extended in the overseas markets. The IMF and Warren Buffett echoed Bernanke's sentiments as well. However, both noted a slow recovery.

Buffett, confirming he was buying equities, stated that he does not anticipate another downturn in the economy. At a conference, the Berkshire chairman also noted the worst has passed for the residential housing market where he sees important signs of life. The market remains intent on focusing on the initial recovery and not the trajectory over the medium term.

The recovery trade boosted commodities across the board from oil to steel. Crude oil has regained momentum ahead of the today's weekly inventory data, now trading in the $70 per barrel range. Natural gas has rebounded sharply over the past few session after reaching prices not seen since the last recession. Gas has gained a whopping 46% since Sept. 4 as market participants move out of oil and into gas after it hit a seven-year low. Surplus inventories, coupled with restrained industrial demand pushed prices to a low in the mid $2/MMBtu -- a far cry from the 2008 peak at $13/MMBtu.

Gold continues to hold its ground at a $1,000 per ounce despite Bernanke's comments that U.S. inflation remains subdued - a position further underscored by today's CPI data. The recovery driven commodity trade is being magnified by ongoing declines in the dollar. The greenback continues to lose ground as investors seek out higher-yielding assets. The Dollar Index has lost nearly 15% from the March highs.