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Economic reports help stock gains

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Both Bank of America (BAC) and Morgan Stanley (MS) surprised the market with better than expected earnings. The report seemed to have given the premarket futures some life and stock indexes gaped up at the opening.

The S&P 500 has risen over 8% the last couple weeks but finacials have been noteable for their absence. Gains like this have been met in the past with a profit taking reaction in this volatile market. After all, it's not like the problems in Europe or the US for that matter have gone away. Standard and Poors has now cut debt ratings on nine countries, yet France and Spain, two of the most questionable, both conducted successful auctions to renew their debt at yeilds on 10 year bonds that were below their most recent auction.

In addition, there is news reports that Greece may bevclose to striking an deal with private creditors on a debt writedown. It has to happen, but just how much of a haircut it taken is at issue. The bigger haircut helps Greece, but hurts holders of their debt.

So there seems to be a light at the end of the tunnel, at least at the moment; but don't hold your breath too long as any passer by with a news story may blow it out.

There has been better news in the U.S. too.

The weekly initial unemployment claims reports have been good in recent weeks. Thursdays report this week as well. Initial clams declined by 50,000 to 352,000. That is the lowest level of initial claims since April 2008. what is reassuring here is that initial claims are a leading indicator for the economy in general.

Continuing claims for the week also fell by a considerable 215,000 to 3.432 mln.

The December CPI report also brought good news. CPI was unchanged leaving it up 3.0% for the last 12 months. A decline in the energy index (-1.3%) offset increases in other indexes like food (+0.2%) . The core CPI, which excludes food and energy, was up an expected 0.1% in December. Over the last 12 months, core CPI has risen 2.2%.

Finally, housing starts declined 4.1% in December to a seasonally adjusted annualized rate of 657,000. The drop was led by a 13% decline in starts of multi family units. Single-family starts, interestingly rose 4.4% to 470,000.

These improving economic reports have helped stocks advance over several recent days. But market internals are now getting extended and stocks are primed for a pullback. In the mix for tomorrow is that Google, Intel, and eBay announce earnings. With tech stocks leading the charge most recently it will be interesting to see if these major company earnings releases add for fuel to the fire or bring a bucket of water. With market internals extended even good earnings reports after a stock run up could usher in a "sell the fact' scenario.

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