S&P 500, Germany’s Dax, Back in the Same Groove (Up!)

On Jan 11, German and U.S. stocks were heading in opposite directions. The Standard & Poor’s-500 index had gained 1%, while Germany’s DAX had dropped 0.9%.

But a measure of the tendency of two indices to move in sync, known as correlation, was signaling that they wouldn’t go in separate directions for much longer. Normally, the S&P 500 and the DAX move in similar directions—the average 22-day correlation, a measure of short-term moves, between the two markets during the past 10 years is 84%. (A correlation of 100% means two indices move in lockstep all the time; a correlation of -100% means they move in perfect opposition.)

But the 22-day correlation, a measure of short-term moves, had dropped to negative 54% on Jan 11, the weakest since April 1995. And when correlations reach extreme levels relative to history, it’s usually just a matter of time before they reverses direction.

That’s exactly what happened during the past month or so. Since the DAX hit a 2011 low on Jan 10, it has gained 7.7%, while the S&P 500 has gained up 5.8%. Both indices are up 6.8% for the year. And the correlation between the two has also reasserted itself with a vengeance: It’s now 97%, the highest since Sept. 22.

So what’s changed? With the European Union taking steps to backstop its weakest members, investors are finally putting money to work on the continent.

Data Points: U.S. Markets

This week, the Dow Industrials rose 117.99 points, or 0.96% to 12391.25, the Nasdaq Composite gained 24.51 points, or 0.87% to 2833.95 and the S&P 500 added 13.86 points, or 1.04% to 1343.01.

MarketBeat Handicaps the Daytona 500: Look for Tony Stewart!

The Daytona 500, the Great American Race, takes place on Sunday. And as any Nascar fan will tell you, it’s a sponsor festival.

So, MarketBeat thought we’d analyze the favorites against the public market performance of their sponsors.

http://sportsdirect.usatoday.com/odds/usatoday/nascar.aspx, the favorites (and their sponsors) are:

• Kevin Harvick 7-1 (Budweiser)
• Kyle Busch 8-1 (M&Ms)
• Tony Stewart 9-1 (Office Depot/Mobil 1)
• Dale Earnhardt Jr. 9-1 (National Guard/Amp Energy)
• Kurt Busch 10-1 (Shell/Pennzoil)
• Jeff Gordon 10-1 (Drive to End Hunger)
• Jeff Burton 12-1 (Caterpillar)
• Clint Bowyer 12-1 (Cheerios/Hamburger Helper)
• Jimmie Johnson 12-1 (Lowe’s)
• Jamie McMurray 12-1 (Bass Pro Shops)

Well, we can toss out the private companies and non-profits, so that means so long to Kurt Busch, Jeff Gordon and Jamie McMurray.

Of the remainder, the best performing stock year-to-date is ExxonMobil, which owns Tony Stewart’s co-sponsor, Mobil 1. It’s up 15.6% this year. Tony’s other sponsor, Office Depot is also up 3.8% year-to-date, giving him a nifty 19.4% gain.

In second, Jeff Burton’s Caterpillar, up 13% year-to-date. Cat is up 2.4% today, a strong day and perhaps a hint at what to expect from Jeff B on Sunday?

Third favorite goes to Kurt Busch, who has Royal Dutch Shell stock up 5.7%. Royal Dutch Shell owns both Shell and Pennzoil.

Obama Bounce?: Intel now a Candidate

Well, it didn’t work out for Apple yesterday. But Intel’s up slightly today. Is the chip giant going to get an Obama bounce? The Journal’s Don Clark writes:

Intel Corp. used President Obama’s visit to unveil plans to build a $5 billion chip factory in Arizona and hire 4,000 additional workers, moves that dovetail with the administration’s job-creation agenda.

The announcement, made by Intel Chief Executive Paul Otellini as the president toured Intel’s operations in Oregon, is the latest in a series of steps by the Silicon Valley giant to boost manufacturing capacity and shrink transistors to boost chip performance. Earlier Friday, the White House said Mr. Otellini will join the President’s Council on Jobs and Competitiveness.

Data Points: Energy & Metals

This week, Nymex crude for March delivery rose $0.62 per barrel, or 0.72% to $86.20 and Comex gold for February delivery gained $28.30 per troy ounce, or 2.08% to $1388.20.

Old Yeller and His Faithful Companion Silver Have a Strong Week

A good week for Old Yeller and Hi-Yo Silver amid the churning and increasingly violent unrest in the Middle East.

The barbarous relic (futures for February delivery) rose $28.30 to $1388/oz this week, the best weekly gain of the year. It is up five straight sessions and on a three-week win streak.

Hi-Yo Silver gained for a fourth straight week, hitting a fresh 2011 high today at $32.298/oz. Poor-man’s gold hasn’t been this expensive since March 1980 and its still a ways off its record close of $48.70 hit in Jan. 1980. Of course, back then the Hunt Brothers were busy trying to corner the silver market. That didn’t work out so well for them.

With reports of security forces firing on protestors in Bahrain, reports of protestors killed in Libya, more rallies in Egypt, unrest in Djibouti, deaths reported in Yemen and Egypt okaying an Iranian naval ship passage through the Suez Canal, the precious metals are likely to keep getting attention from rattled investors.

U.S. Steel Tumbles Days After Goldman “Buy” Call

Goldman’s big call on U.S. Steel earlier this week is looking a little iffier today.

On Tuesday, Goldman upgraded U.S. Steel to buy from neutral, as Matt noted. The case: “Rising steel prices and increasingly positive leading indicators of demand are pointing to a steel industry that should see its earnings markedly improve in near to medium terms.” Goldman upped its price target to 75 from 61.

The stock subsequently jumped from 60.36 on Monday to 62.24 at Tuesday’s close.

Today, U.S. Steel is down more than 3% at 61.51. Among other big steel makers, AK Steel is down 3%. No big headlines directly related to U.S. Steel, which sports the excellent symbol X, but there are three potential issues.

• Brazil reported a huge surge in steel exports today. They could represent cheaper competition.
• A price increase by AK Steel was matched by U.S. Steel mills, according to web site steelguru.com. But the site says it’s not yet clear if those increases have been accepted by buyers.
• And the World Trade Organization has made preliminary, confidential ruling on a case against China’s export restrictions on raw materials used to make steel and other products, according to Reuters. The ruling result isn’t known, so its impact on U.S. Steel (and AK Steel) is tough to measure.

AIG Slide: Is it All the Warrants?

What’s up with the recent slide in AIG?

Back in early January when the stock was hitting its recent highs, AIG’s share price also reflected the fact that it had announced it would issue warrants as a sort of sweetener to shareholders.

Quick refresher: Warrants are sort of like long term options. A warrant gives its holder the right, but not the obligation, to sell or purchase a security at a specific price on or before a specific date. Warrants are worth something on their own. In fact, the AIG warrants right now are trading at around $14.

So, once AIG announced that it’d be giving away these warrants to shareholders, the stock started trading at a higher price to reflect the fact that you’d get a warrant too if you bought the share. That drove the shares higher. So now that warrants have been issued, they’re no longer attached to the stock. So that explains part of the selloff in the shares.

But even without the impact of the warrants, AIG would be down roughly 14%, year-to-date. That’d make it the fifth worst performing stock in the S&P 500 this year.

Nomura: Goldman Close to Big Share Buyback?

Looking for dividends or big share buybacks from the banks? Don’t be surprised who is likely to start returning dough to shareholders first. Yep, the squid.

Nomura Securities says Goldman Sachs could start using extra cash to fund a big share repurchase program as soon as next month. Liz Moyer, our colleague at Dow Jones, notes that thus far banks have only bee able to repurchase shares to manage share-based compensation programs.

In its report, Nomura says a buyback program could reduce Goldman’s outstanding shares by 10% over two years, boosting earnings per share and return on equity.

Goldman Sachs could use the help. Its shares are flat year-to-date, compared with a 13% gain for rival Morgan Stanley. Over the same period, even lowly Citigroup has managed a 4% gain. Goldman is up 0.4% today.

Bahrain Unrest, Iranian Suez Cruise Reverberate

As we mentioned earlier, the unrest in the Mideast is still reverberating in the markets. The prospect of bloodshed in Bahrain isn’t helping matters. Nor does the on-again/off-again headlines about the possible cruise of Iranian warships through the Suez. Now the AP is reporting:

State media say Egypt has agreed to let two Iranian naval vessels transit the Suez Canal, a move that comes despite expressions of concern by Israeli officials.

State-run news agency MENA said Friday that authorities approved a request from Iranian diplomats who offered assurances that the two ships won’t have weapons or nuclear or chemical material.

The move had been widely expected and Iranian officials have insisted the request is in line with international regulations. They say the two vessels are headed to Syria for training.

Brent crude oil, the European benchmark, has been creeping up on the news, as the chart shows.

Emerging Market Fund Outflows Increase

The spring away from emerging markets continues apace, propelled forward by headlines of civil unrest rippling across the Middle East.

According to EPFR, a market data group that tracks fund flows, Emerging market equity funds saw outlfows of $5.5 billion this week, up from $3 billion in outflows the week before. Emerging market fixed income funds saw outflows of $741 million in the past week compared with outflows of $477 million the previous week.

RBS says in a report this morning that outflows are strong in Asia and Latin America, but more muted in Easter Europe. India is down about 11% year-to-date, Brazil is off about 1%. By comparison, the S&P 500 is up 7% this year and the Stoxx Europe 600 is up 5%.

Assets are being reallocated to developed markets, where stock markets are performing more robustly than their emerging market cousins. Developed markets had inflows of $12.3 billion this week, up from $4.6 billion the week before.

The Nasdaq Composite: Razzlin’ and Dazzlin’ ‘Em

The Nasdaq Composite index is tearing it up this month, leading the trio of major U.S. stock indexes with a nearly 5% gain in February. And, in the next few hours/days, depending on how this afternoon’s trading shakes out, the Nazzie Composite is likely to leap over its latest threshold, the 2859.12 level. (At last glance, we’re just 0.89% away from that target.) That would put the venerable tech-heavy index above its 2007 highs and back to its highest point since Dec. 12, 2000 — the very last ebbs of the millennial tech bubble, over a decade ago.

If we get that nice little present, it will be but the latest in a long string of champagne-popping round-number-threshold-jumpers, doublers and historic hurdles. Here’s a quick tally:

• In early November, the Dow Jones Industrial Average jumped over its Lehman Brothers-week high
• On Jan. 3, the Nasdaq 100 index — comprising 100 of the biggest companies on the Nasdaq Composite — topped its 2007 highs to reach its highest point since Feb. 2001
• On Feb. 1, the DJIA leaped over 12000; the S&P 500 chimed in with its crashing of the 1300 barrier
• On Wednesday, the S&P 500 doubled off its post-crisis lows in Mar. 2009

Whew! What a list.

As for the Nasdaq Composite, no surprises on what’s behind the Nazzie’s dazzling run: AAPL, MSFT, ORCL, GOOG, INTC, CSCO, AMZN… And if beginning-of-the-year forecasts are anything to go by, there aren’t too many investors and analysts out there who would stand in the way of this tech-fueled party rolling onwards and upwards this year.

Sentiment Watch: Risk On/Risk Off ‘Losing Steam’

This is sort of an ancillary angle of the move lower in correlation that we spotlighted yesterday. Greg Peters of Morgan Stanley Cross Asset Strategy offers this take on the markets in a note Friday:

“Not only is sentiment bullish, but the consensus across different investor types is greater than we recall ever seeing. This bullish consensus view includes a positive outlook on U.S. growth, growing concern about inflation, declining fears of sovereign risk, and a preference for developed over emerging market equities. The second observation is that the macro-driven “risk-on / risk-off” investing approach that has dominated the past two years is losing steam. We expected this to happen in 2011, although not this soon. These two developments are not independent, and together they have significant investment implications. Moreover, we see considerable risk that these trends could reverse, at least in part, as early as 2Q.”

Apple: Dinner With Obama, Dessert With DOJ, FTC

President Obama famously met with Apple CEO Steve Jobs yesterday. This morning, we learn that some of his pals over at the Justice Department and the Federal Trade Commission are taking an interest in Apple, too.

While everyone in techland argues about “being open” and the value of “open-source” software development, Apple is decidedly closed. And that’s worked pretty well for them. Apple is the second most valuable public company in the U.S., behind oil titan ExxonMobil.

According to a story in the Journal, the Feds are looking at how Apple is pricing content from media companies that want to sell content on the various popular Apple iProducts. The look-see is termed “preliminary” and “might not develop into either a formal investigation or any action against the company.”

Sometimes being the Big Dog means attracting more government attention (See Microsoft, Old AT&T, Old IBM). The Journal says that Apple has also drawn some interest from antitrust folks in Europe. Mr. Jobs probably hopes European Council President Herman Von Rompuy isn’t trying to book a dinner date with him.

Apple’s shares are down about 0.5% in a mixed-market session.