The debates have started in earnest. The headline debate was that of President Obama and the Democrats debating with the Republicans over healthcare reform. That summit overshadowed the Senate’s Finance Committee debate with Fed Chairman Bernanke. However, for investors, it didn’t overshadow the debate between Greece and Standard and Poor’s over their debt ranking, the EU, Germany, and its own unions. Greece remains the poster-child of PIIGS (Portugal, Italy, Ireland, Greece, and Spain). How Greece’s debt problems are handled will be the starting point for how the EU looks at the other nations with high debt to GDP ratios. Those concerns buoyed the US Dollar in early trading and the adverse impact of a stronger dollar, not driven higher by a stronger US economy but driven by weakness in other currencies, continues to have an adverse impact on stocks.

Another contributor to the early market weakness was the news on the economy. The headline Durable Goods Orders for January was a positive surprise. The index jumped 3.0% in January, doubling expectations for a 1.5% increase. December was revised to a surge of 1.9% from 0.3%. Therefore, January’s gain is on top of a significantly upward revision in the prior month. That good news was wiped out because the strength was related to Boeing BA (-1.0%) having received a significant order for 59 aircraft. Ex-transportation, durable goods orders would have been down 0.6% versus expectations for a gain of 1.0%. That’s a big miss, and not totally made up for by the December revision to a gain of 2.0% from up 0.9%. Direction is part of the problem, moving from a positive to a negative. Expectations were high because we’ve seen strong “New Orders” components in the regional and national manufacturing surveys. Perhaps hurting investor sentiment even more was that Initial Jobless Claims for the week ending February 20^th unexpectedly rose by 22,000 to 496,000. Expectations were for a decline from the prior week’s 474,000 to 460,000. It’s more than it having missed by 36,000. Analysts keep calling for claims to hold around that 450,000 level. That’s the level where we would extrapolate the weekly data to suggest the monthly number would come in flat. We’ve only got a week to go before seeing the February Employment Report. Expectations edged up to -40,000 on this news. Make no mistake, if jobs are important, then these weekly figures are going to have an increasing influence on trading.

When it comes to the economy, the market took a hit yesterday. Bernanke was trying to talk down the implication of his recent move to raise the discount rate. In doing so, he warned that the economy wasn’t really all that strong without government support. Suddenly, the numbers were proving his point for him. Then you add the concerns over weather. The bad weather has had a modest direct impact on crude and gasoline, but is also having an adverse impact on the economy overall. Unlike the holidays, this is not “spending deferred”. If someone doesn’t make it out shopping one week, they are not going to go out the next week and buy twice as much. The lost “consumer sales” is gone. That means weakness in the economic numbers as a result. So, with Europe facing clear economic problems and the US coming in with disappointing data of its own, crude responded with a significant drop. We’ve pointed out the fact that there is technical resistance in the area of the October/November highs just over $80 per barrel. Crude struggled with this level for the past week. Once it looked clear that resistance would thwart the current rally, crude picked up momentum to the downside. This hurt the Energy Sector stocks, which has been one of the sectors that helped the market bounce off of recent lows.

In general, we can say that the weak economic outlook, as a result of all of these data, hurt the economically sensitive stocks, including Technology and the Retailers. The Philly Semi Index, SOX, fell 0.3%. That group was the worst performing group early in the day, leading the decline at the open. Financials were having “issues” of their own, although somewhat related to the jobs and economic disappointment. FirstAmerican CoreLogic reported that 1/4^th of all homeowners with a mortgage, about 11.3 million, were “underwater”. That means that they owe more on their homes than what they is worth. In fact, 10% of all mortgages owed 25% more on their home that its worth, according to this survey. Another 2.3 million have less than 5% equity left. As we’ve suggested many times, the pressure from Alt-A loans expiring, the end of the government tax credit, and the conclusion of the Fed’s plans to buy mortgage backed securities and what that might do to mortgage rates leaves the residential real estate market vulnerable to further price declines. So, it certainly didn’t help when the Federal Housing Finance Agency, FHFA, reported that December home prices fell 1.6% from the prior month. Expectations were for a gain of 0.4%. Weather certainly might be playing a part. After all, who wants to go buy a $2 million home during a snow storm? Since homeowners were writhing on the ground with their teeth showing, Freddie Mac reported that 30-year fixed rate mortgages pushed over 5% to 5.05% from 4.93%. The news was all bad for the Financials. Financials ended up being the worst performing group yesterday.

Mid-term election years have a strong tendency to have a negative influence on the market. Political bickering weighs on public confidence, especially during tough times. Now that we have 24/7 news coverage, we have 24/7 partisan grandstanding and bickering. Yesterday we had it on center stage, and that’s simply not a positive. Stocks rallied momentarily after the Treasury sold $32 billion in 7-year notes at 3.078%. The indirect bidders snapped up 40.3% of the auction, and that kept rates down after the auction results were released. The market responded by cutting the day’s losses significantly. The fact that the market found support, the S & P bounced off of its 21-day trading moving average, and then held it all morning provided the intra-day base for a bounce ahead of today’s rather full economic calendar. We’ll get the 1^st quarter GDP revision, Chicago PMI, Univ. of Michigan Sentiment, Existing Home Sales, and the Milwaukee NAPM Index.