Daily State of the Markets
Thursday Morning – September 22, 2011
Good morning. I will have to admit that while the vast majority of my portfolios continue to be positioned fairly defensively, the market’s reaction to the Fed announcement took me by surprise. You see, up until about 2:20 pm eastern the market had been trading fairly well recently. I had even gone so far as to suggest to colleagues this week that the dip buyers looked to be getting bold and that the market “felt” like it wanted to go higher. However, the release of the FOMC statement may have changed that as it was clearly not received well.
Before we get into the why’s and wherefore’s of the late afternoon dance to the downside, I feel compelled to make sure that everyone is aware of the reason behind the delay in the FOMC statement. Anybody who follows this game knows that the release of the Fed’s statement is usually right at 2:15 pm eastern. However, yesterday the statement was delayed for almost 10 minutes. During that time, t was easy to let your mind run wild as to the possible ramifications of the statement being late. But in this day and age of high speed internet, email, IM’s, VPN’s, Twitter, and FaceBook, it turns out that a copier jam was to blame. Yep, that’s right; the reason we were kept on pins and needles was because the paper feeder gummed up the works!
Getting back to the matter at hand, I was more than a little perplexed as to why the market would dive 300 Dow points after the announcement. At first blush, traders appeared to have gotten what they wanted – namely more stimulative measures from the Fed. And the details of the new “operation twist” were pretty much in line with what the market had been expecting. So, why the dive?
I scanned my news sources and contacted friends to no avail. Then I sat down long enough to actually read the statement. And there it was in black and white in the second paragraph: “There are significant downside risks to the economic outlook, including strains in global financial markets.” My reaction was, wow, that doesn’t sound like the usually upbeat Bernanke gang at all. In fact, the words “there are significant” in front of “to the economic outlook” was brand new. Also new was the mention of the difficulty seen in the global financial markets.
In addition, it appeared the FOMC was no longer blaming the weakness in economic activity on what it saw as temporary gains in food and energy prices and/or the supply chain interruptions stemming from the earthquake in Japan. No, the statement was pretty clear in saying that things don’t seem to be going very well at all.
But wait, there’s more. The statement also alluded to the idea that the debt mess going on across the pond could impact our already sputtering economy. And with no real end in sight to the Greek Tragedy playing out in Europe, well, it is relatively easy to see why traders may have wanted to sell first and ask questions later.
Now toss in the ideas that (a) the last round of economic stimulus from Bernanke’s gang (which was twice as large) didn’t do much of anything and that (b) the new dance routine is already being viewed as packing less punch than QE2, and one may be left wondering how exactly moving money around in the bond market is supposed to improve the economy and stimulate jobs.
Given that the vast majority of monetary policy moves are designed to instill confidence, I will have to once again hand it to Mr. Bernanke for not giving up. As I’ve said recently, there is a growing number of analysts who believe the Fed has done all that it can, and this too may have been part of the reason behind the selling on Wednesday.
However, unless things perk up pretty quickly (and remember, it rarely pays to count out propensity for the American consumer to hit the malls on the weekends), it would appear that there wasn’t much confidence instilled in the markets by the Fed’s latest move. Gone are the days when a 0.25% cut in the Fed Funds Rate (a rate that impacts almost no one outside of bankers in the real economy) would send the Dow soaring. No, it would appear that unless I missed something in reading that statement, the economy could be in for a bumpy ride.
Turning to this morning… Stocks around the globe flushed lower (European markets down over -4%) on the back of the Fed statement. In addition, PMI’s from Europe and China came in below 50 (it was China’s third consecutive sub-50 reading). Recall that readings below 50 are indicative of a contraction in the manufacturing sector. In short, the fears of a global recession are rising.
On the Economic front… Initial Claims for Unemployment Insurance for the week ending 9/17 fell by 9,000 to 423K, which was worse the consensus estimate for 419K but below last week’s revised total of 432K. Continuing Claims for the week ending 9/10 came in at 3.727M vs. 3.723M and last week’s 3.755M.
Thought for the day… Keep in mind that not every opinion is worthy of your attention…
Here are the Pre-Market indicators we review each morning before the opening bell…
- Major Foreign Markets: Australia: -2.62% Shanghai: -2.78% Hong Kong: -4.85% Japan: -2.07% France: -4.67% Germany: -4.03% Italy: -3.43% Spain: -4.30% London: -4.19%
- Australia: -2.62%
- Shanghai: -2.78%
- Hong Kong: -4.85%
- Japan: -2.07%
- France: -4.67%
- Germany: -4.03%
- Italy: -3.43%
- Spain: -4.30%
- London: -4.19%
- Crude Oil Futures: -$0.97 to $85.95
- Gold: -$13.20 to $1795.90
- Dollar: higher against the Yen, Euro and Pound
- 10-Year Bond Yield: Currently trading at 1.933%
- Stock Futures Ahead of Open in U.S. (relative to fair value): S&P 500: -3.21 Dow Jones Industrial Average: -22 NASDAQ Composite: -0.50
- S&P 500: -3.21
- Dow Jones Industrial Average: -22
- NASDAQ Composite: -0.50
Wall Street Research Summary
- Cubist Pharmaceuticals (CBST) – BofA/Merrill
- Intel (INTC) – BofA/Merrill
- National Oilwell Varco (NOV) – Added to Top Picks Live at Citi
- Stryker (SYK) – Citi
- Lennar (LEN) – Citi
- Camden Property (CPT) – FBR Capital
- Bristol-Myers (BMY) – Goldman Sachs
- Broadcom (BRCM) – JMP Securities
- Standard Pacific (SPF) – JPMorgan
- Yahoo! (YHOO) – Stifel Nicolaus
- Netflix (NFLX) – UBS, Wedbush Securities
- Forward Air (FWRD) – BofA/Merrill
- Zimmer Holdings (ZMH) – Citi
- Johnson & Johnson (JNJ) – Goldman Sachs
- Diamond Foods (DMND) – Jefferies
- Athenahealth (ATHN) – JPMorgan
- KB Home (KBH) – JPMorgan
- Hovnanian (HOV) – JPMorgan
- Procter & Gamble (PG) – SunTrust Robinson Humphrey
- Urban Outfitters (URBN) – Wedbush Securities
Long positions in stocks mentioned: none
For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com
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