Daily State of the Markets
Tuesday Morning – May 17, 2011
Good Monday. To be sure, the Euro/Dollar/Stock trade has dominated the action of late. And my guess is that you are likely growing tired of reading about the idea of big hedge funds and their computers moving the markets in response to every tick in the Euro. (I’m certainly growing tired of writing about the same old thing day after day!) So, while “the trade” certainly made its presence felt again on Monday, there may have been other issues weighing on the minds of investors.
Although there continues to be a fair amount of trepidation in the market in relation to the debt issues in Greece, Spain, Portugal, and the rest of the PIGI’S, yesterday’s market presented a fair number of additional weighty issues to consider. First there was the arrest of IMF Managing Director Dominiue Strauss-Kahn, or DSK as he is quickly becoming known as in the press. This event captured headlines and caused some concern about the timing of the bailout deals reached with Greece et al.
Next up, was a little economic report here at home. The Empire Manufacturing Index, which is designed to indicate the state of the manufacturing sector in the New York region came in well below expectations. And while there were some upbeat components of the report, more and more data are suggesting that the economy may have hit a bump in the road to recovery recently.
Speaking of the macroeconomic picture, the talk out of last week’s SALT (Skybridge Alternatives) Conference was that there will be problems ahead in the U.S. economy. The gathering of Who’s Who in the Hedge Fund community produced a bit of déjà vu all over again, as it seems that the word de-risking could soon make a comeback in hedgieland. But for now, most speakers suggested that things look fine. (However, it is important to note that managers trying to move tens of billions have to move in advance of an event.)
Now toss in the idea that the U.S. will quickly bump into its legislated debt ceiling, the “sell in May and go away” chatter, and the difficulty in tech seen yesterday, and you’ve got a recipe for some selling. And this is exactly what we saw going into the close Monday afternoon.
While the Euro/Dollar trade was clearly still “on” yesterday afternoon, we would be remiss if we failed to address the rather dramatic underperformance of the NASDAQ late in the day. Although the Dow lost 47 points, or -0.38%, and the S&P fell -0.62%, the NASDAQ Composite dove -1.63% on the day.
There did not appear to be any uber-important headlines hitting the tape in the techs. However, it is clear that the likes of Yahoo (YHOO), Microsoft (MSFT), and Amazon (AMZN) greased the skids for the tech-heavy NASDAQ. The internal troubles at Yahoo in relation to the Alibaba issue can easily explain away the big drop in YHOO shares. But such a problem should not impact the sector as a whole.
Digging further into yesterday’s tech mess, it became clear that the seasonal weakness as well as concerns about the U.S. economy were cited as reasons for the selling. And since even market-darling Apple (AAPL) has been hit over the last two days, this, along with some of the other weighty issues bears watching going forward.
Turning to this morning… There are contradictory headlines out of Europe this morning in relation to the idea of Greece restructuring debt. However, it appears that the market has focused mostly on comments from the French and Belgium Finance Ministers, who said that restructuring is “off the table.”
Earnings are also a focus so far today as both Wal-Mart (positive) and Hewlett-Packard (negative) results have crossed the tape.
On the Economic front… Housing Starts fell by 10.6% in April to an annualized rate of 523K. This was below the consensus for 536K. The March numbers were revised higher to an annualized rate of 585K from 549K. Building Permits for April fell 4% to 551K. This was also below the consensus of 582K and last month’s reading of 574K.
We will also get the report on Industrial Production/Capacity Utilization this morning at 9:15 am eastern.
Thought for the day… Remember that it pays to be open minded (in more ways than one)…
Here are the Pre-Market indicators we review each morning before the opening bell…
- Major Foreign Markets: Australia: +0.61% Shanghai: +0.13% Hong Kong: -0.26% Japan: +0.09% France: -0.36% Germany: -0.68% London: -0.08%
- Australia: +0.61%
- Shanghai: +0.13%
- Hong Kong: -0.26%
- Japan: +0.09%
- France: -0.36%
- Germany: -0.68%
- London: -0.08%
- Crude Oil Futures: -$0.77 to $96.60
- Gold: -$5.40 to $1495.80
- Dollar: lower against the Yen, Euro and pound
- 10-Year Bond Yield: Currently trading at 3.136%
- Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: -3.21 Dow Jones Industrial Average: -30 NASDAQ Composite: -5.85
- S&P 500: -3.21
- Dow Jones Industrial Average: -30
- NASDAQ Composite: -5.85
Wall Street Research Summary
- American Electric Power (AEP) – BofA/Merrill Lynch
- Covanta Holdings (CVA) – BofA/Merrill Lynch
- China Telecom (CHA) – Credit Suisse
- China Life (LFC) – Credit Suisse
- Murphy Oil (MUR) – Mentioned positively at Oppenheimer
- Monster Worldwide (MWW) – Mentioned positively at Oppenheimer
- Forward Air (FWRD) – RW Baird
- Nike (NKE) – Mentioned positively at UBS
- Foot Locker (FL) – Estimates increased at UBS
- Clean Energy Fuels (CLNE) – BofA/Merrill Lynch
- Cree (CREE) – BofA/Merrill Lynch
- Petrobras (PBR) – Barclays
Long positions in stocks mentioned: none
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