Daily State of the Markets,
Friday Morning – March 18, 2011
Good morning. One of the most interesting comments I received in my email inbox yesterday suggested that I was reading too much into the market’s volatility and that since there was no cloud of radiation wafting over Tokyo, the bulls should be good to go. The sender went on to opine that with the economy doing well here at home, we ought to see the market get past the emotion of the moment in relatively short order.
I will have to admit that this comment definitely got my attention. Perhaps I was watching the action a little too closely. Maybe I was reading too much into the violent swings that are clearly the result of computer programs. And maybe, just maybe, I was allowing myself to stray a little too close to the bear camp’s point of view.
As I’ve mentioned a time or 20, I am a card carrying member of the glass-is-at-least-half-full club. I believe it was late 1994 when I learned that while the bears do enjoy their day in the sun every once in a while, it just doesn’t pay to be Debbie Downer for too long in this business (remember, stocks go down three times as fast as they go up). As such, I’m always on the alert for my emotions straying too far from the centre line.
In rereading yesterday morning’s modest rant, I will have to admit that I may have been a little hacked off. In short, I’m concerned that the extreme volatility is ruining the game for an awful lot of individual investors. You see, the very folks who threw up their hands at the end of 2008 and vowed that they were never going to invest in the stock market again have reportedly seen the error of their ways and are now getting back in the game (this according to the ICI flow of funds data showing something on the order of $33 billion in new money having been plunked into equity funds in the first 2.5 months of the year). And what are they greeted with? Well, not exactly the strong market everyone on the street was predicting.
Other than my silly sentimental concerns for the players just getting back in the game, I’m also a little concerned that a prolonged corrective phase in the stock market may convince the U.S. consumer to ‘just say no’ to that new fill-in-the-blank. And just like that, we could quickly be staring at another soft patch, which could leave employers deciding to hold off on making any new hires for a while longer yet.
To be clear, I’m not suggesting that any of the above will actually occur. I’m merely looking at the possibilities. And I am well aware of the fact that there is always a chance the stock market will decide that none of the negative headlines matter and just resume marching merrily higher. However, should this period of negative headlines and extreme volatility continue for much longer, I believe the odds of the bulls being “good to go” could easily diminish.
So, while Ms. Market can do anything she darn well pleases (at just about any time she darn well pleases), I for one will be watching the economic data over the next few weeks VERY carefully. So far we’ve seen a drop in the UofM’s consumer sentiment, a surprisingly weak German ZEW index, and another decline in Bloomberg’s new Consumer Comfort Index. Thus, it is safe to say that the public IS paying attention.
But, then again, if the bulls can get a couple good headlines in a row, they might be able to create a stampede and push the indices back up. And if this happens quickly enough to avoid any damage to the consumers’ collective psyche, then the bulls might indeed be good to go for quite some time. However, I’m going to watch the economic data closely – just in case…
Turning to this morning… We’ve got an abundance of new developments on all the important fronts. First, Nike missed earnings and talked about rising costs and their plans for hiking prices (p.s. Procter & Gamble is also talking about raising prices this morning). Next, the U.N. Security Council finally authorised a no-fly zone and attacks against Libya. The G7 intervened in the foreign exchange market to limit the Yen’s rise. China raised bank reserve requirements for the third time this year. And finally TEPCO (Tokyo Electric Power Co.) says that power will be restored to all four crippled reactors by Sunday. All of the above is leading to a continuation of yesterday’s rebound in stock prices in the early going.
On the Economic front… We do not have any economic data to review before the bell this morning.
Thought for the day: Best of luck on this Friday and be sure to enjoy the weekend!
Here are the Pre-Market indicators we review each morning before the opening bell…
- Major Foreign Markets: Australia: +1.67% Shanghai: +0.42% Hong Kong: +0.07% Japan: +2.72% France: +0.75% Germany: +0.61% London: +0.53%
- Australia: +1.67%
- Shanghai: +0.42%
- Hong Kong: +0.07%
- Japan: +2.72%
- France: +0.75%
- Germany: +0.61%
- London: +0.53%
- Crude Oil Futures: +$1.65 to $103.07
- Gold: +$14.40 to $1418.60
- Dollar: lower against the Yen, Euro, and Pound
- 10-Year Bond Yield: Currently trading at 3.268%
- Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: +10.13 Dow Jones Industrial Average: +92 NASDAQ Composite: +17.42
- S&P 500: +10.13
- Dow Jones Industrial Average: +92
- NASDAQ Composite: +17.42
Wall Street Research Summary
- Humana (HUM) – Argus
- Cabot Oil & Gas (COG) – BAC/ML
- TD Ameritrade (AMTD) – BAC/ML
- Janus Capital (JNS) – Citi
- Diamond Offshore (DO) – FBR Capital
- Meadwestvaco (MWV) – Goldman Sachs
- Fifth Third (FITB) – Keefe, Bruyette & Woods
- News Corp (NWSA) – Target increased at RBC to $20 from $18
- Motorola Mobility (MMI) – UBS
- Autonation (AN) – Credit Suisse
- Nike (NKR) – Goldman Sachs
- American Eagle (AEO) – Susquehanna
- Phillips-Van Heusen (PVH) – Estimates and valuation range reduced at Wells Fargo
Long positions in stocks mentioned: None
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