Finally something to hang your hat on for the market with respect to economic data, which suggests things could get better sooner rather than later. These days, "sooner" means in the next six-months or so, but the market being so oversold purely with respect to valuation will look forward up to a year or so if it's getting a sense things could get better. Yes, I know anything could happen, but in this case I mean it as some kind of foundation could be forming. I never played those letter games, you know, V-shaped recovery, because it's so goofy. I'm not even sure there is a letter in our alphabet to accurately describe how the recovery ultimately pans out. Sadly, it's going to take more than one letter.

Still, industrial production increased 1.0%, and capacity utilization edged up to 74.8%; the Street was looking for 0.6% and 74.5%, respectively.

These kinds of sessions remind us there is money on the sidelines, and good news can draw it out. The thing is the money earmarked for the market is a small pool, getting the masses more interested is going to take much more than an occasional economic report that beats the Street. The dilemma is the market has to go higher for people to believe, and people have to believe before the market can go higher.

Wal-Mart is Dead Money
By: Brian Sozzi, Equity Research Analyst

The second quarter could have been quite a different tale for Wal-Mart (WMT) than the results put forth today. The fact that Wal-Mart managed an in line quarter on the EPS line and combined that with a $0.05 guidance raise on the high-end of its previous FY11 forecast are straightforward reasons for the positive market reaction. Why could it have been worse for the largest retailer in the world? Gross margin and customer traffic are under pressure, among other factors.

If the second quarter suggests anything about Wal-Mart, it is that in a sluggish sales environment, brought on by economic conditions and merchandise misfires, there are levers at management's disposal to bring down operating expenses. Unallocated corporate expenses declined 15.3% y/y in the quarter, while slow traffic at Wal-Mart U.S. allowed for the strong utilization of employee hour scheduling tools which obviously has positive expense implications. In raising its FY11 EPS guidance, Wal-Mart has signaled to the market that although sales will take time to gain momentum in the U.S., regardless of easier comparisons, it can keep a lid on expenses. Though the expense message was great to observe, it detracts from the fact that Wal-Mart has not done the lifting needed to retain aspirational shoppers gained in the throes of the recession. As a result, this has left Wal-Mart exposed to a core lower income customer base that spends cautiously on paycheck week, and not necessarily at Wal-Mart (dollars stores instead).

Please visit www.wstreet.com to read remainder of piece.

Note: Target (TGT) is out with its 2Q10 earnings tomorrow morning. I expect a very different quarter from the company relative to Wal-Mart. Target's traffic has been increasing whereas Wal-Mart's is mired in a slump. Moreover, Target is having sales success in discretionary departments. Wal-Mart has maintained an ill-advised strategy of focusing on basic apparel and home goods.

Are Transports About To Pull Out of the Station?
By: David Silver, Research Analyst

The transports are among the strongest sectors today; despite the fears of a struggling economy, the weekly and monthly data from the railroad and trucking sectors just aren't showing this slowdown. The following chart outlines the monthly changes in total carloads since the beginning of 2006. Growth has slowed from the 15% rate during April and May, but is still higher year over year. The Association of American Railroads (AAR) now compares monthly and weekly data with the past two years. Levels of rail traffic are approaching the levels realized before the economy crashed back in 2008. In particular, chemical carloadings have bounced back dramatically, and are approaching the peak levels again.

On top of the strong rail data, truckers are acting well today on the back of a few upgrades in the sector. However, the industry data shows a similar trend of weakening (but still growing) tonnage demand for the sector. The American Trucking Association's (ATA) advanced seasonally adjusted For-Hire Truck Tonnage Index decreased 1.4% in June, although May's reduction was revised from 0.6%to just 0.1%. May and June marked the first back-to-back contractions since March and April 2009. Compared with June 2009, seasonally adjusted tonnage climbed 7.6%, which was just below May's 7.7% increase and the seventh consecutive year over year gain. Year-to-date, tonnage is up 6.6% compared with the same period in 2009.

An Economic Data Tour
By: Carlos Guillen, Research Analyst

As the midpoint of the third quarter passes us by, I can see that the economic backdrop has certainly been improving, but questions still remain as to whether growth will be as high as previously expected, and some have even put the notion of a double-dip recession back on the table. GDP has sequentially improved during the last four quarters, and even looking at year over year GDP growth, I can see three consecutive quarters of growth. However, there is still very mixed data, some indicating a continuing recovery, and others indicating a recession-like economic backdrop ahead.

Taking a look at housing permits, which were just released earlier today, I can see that the housing situation may be taking a turn for the worse. As can be observed in the building permits chart below, which is seen as a good indicator of future housing activity, housing permits in July decreased month-to-month by 3.1% to 565,000 units, well under the Street's consensus estimate calling for 573,000 units. While housing starts appeared to have made a nice increase, this was only the case because of heavy revisions to June's data, and still the 546,000 unit result was under the Street's consensus estimate of 555,000. The general state of housing remains weak, and there are no significant signs that this sector will improve anytime soon as inventory levels still remain high.

Of course, one major driver of the housing industry is the unemployment level, and as far as the jobs situation is concerned, it is not looking too encouraging. Let's remember that the unemployment rate in July clocked in at 9.5%, which remained unchanged from that of the prior month, landing apparently better than the Street's estimate of 9.6%. And, while the unemployment rate result for the month of July did not appear to get worse, I think that just looking at the rate itself is not telling the entire story. To get a better measure of what has been occurring most recently, one has to look at the employment-population ratio, which is the percentage of the civilian non-institutional population that is employed. Clearly, this ratio has been getting worse during the last three consecutive months. Looking forward, however, I am not that pessimistic about the jobs situation, and I expect the employment-population ratio to level off.

So, while today's session is gaining momentum, particularly on the back of a nice jump in industrial production, the economic fundamentals are still shaky, and the main focus will continue to be jobs, jobs, and more jobs.

Color on Crude
By: Conley Turner, Research Analyst

The gains being seen in crude during in the session is very much the result of the strength occurring in the broader equity market. The action represents a turnaround from at least five previous sessions in which the commodity was adversely impacted by both domestic and international macroeconomic data.

The initial catalyst for today's action was a statement by the Fed that industrial production in the U.S. inched up by 1% in the month of July. That number, nonetheless, surpassed the 0.6% that was forecasted by the market, and was bolstered by a rise in auto production. In addition, other economic reports showed that producer prices rose by 0.2% in July. However, housing starts trailed expectations, rising less than less than forecast at 1.7%. This translated into a 546,000 annualized pace.

Looking ahead to the remainder of the week, there is the expectation that crude oil inventories will decline by 2.25 million barrels. As such, more price volatility can be expected as the market digests the economic data scheduled to be released.