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STOCKS OVERCOME WEAK DATA

Investors have quickly swung back to the ultra bullish position after having sold off 9% over the last few weeks.   Equities are up 6% from the recent bottom and the bulls appear to be ignoring the data and just buying.

One of the bright spots in this morning’s news was the continued rebound in the manufacturing sector.  The Philly Fed data showed a reading of 17.6 (vs 17.0 estimates) which is a sign of strong month over month acceleration in activity.  New orders were particularly strong at 22.7 compared with January’s reading of 3.2.  On the back of yesterday’s Empire State report it’s likely that the February ISM reports are shaping up to be another set of good ones.

PPI spiked a bit this month as inflation showed its first signs of life in a quite a while.  Econoday has the details:

“For the overall PPI, the year-on-year rate increased to 5.0 percent from 4.7 percent in December (seasonally adjusted). The core rate year-ago pace firmed to 1.0 percent from 0.9 percent the prior month. On a not seasonally adjusted basis for January, the year-ago increase for the headline PPI was up 4.6 percent while the core was up 1.0 percent.

Today’s report indicates that there are pockets of inflation despite the sluggish recovery. But if economic growth remains soft and if the Fed does unwind its balance sheet expansion in a timely manner, the pockets of inflation likely will not spread. But those are big ifs.”

Jobless claims remain persistently high at 473K.  Investors are largely ignoring the report as the impact of weather is the suspected culprit of another backlog as Labor Department offices were closed for parts of last week.  Continuing claims were steady at 4.56MM.  The jobs market remains a thorn in the recovery’s side.

Leading indicators are also showing signs of weakness as readings came in at 0.3% vs expectations of 0.5%.  This is a trend we have also been seeing in ECRI data as the recovery is clearly losing some steam.

The most alarming news comes from Wal-Mart.  The company reported better than expected earnings, but sales growth showed signs of weakness and guidance was less than robust.  CEO Mike Duke had some details on the conference call:

“The economy remains challenging for many of our customers around the world.”

Eduardo Castro-Wright, Vice Chairman of Wal-Mart added:

“Customers remain cautious, especially in discretionary spending.”

All in all it looks like a weak set of data, but investors are shrugging it off.

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