Daily State of the Markets
Tuesday Morning – March 15, 2011
Good morning. Stocks are falling around the globe as traders and investors are barraged with the horrific, disturbing scenes from Japan and the endless discussion of what the disaster means to the macro view. While it is difficult to focus on the financial aspects of this massive human tragedy, unfortunately the business of the markets marches on – regardless of how insignificant it may seem at times. As such, we will try to put the human element aside and continue to work toward determining the drivers of the market action.
To hear the bears tell it, the combination of the earthquake, the tsunami, and the potential nuclear disaster will undoubtedly slow the Japanese economy. And since Japan is the world’s third biggest economy, if there is a going to be an economic problem in Japan, we’re told that this is sure to be a problem for just about everybody, everywhere.
Our furry friends in the bear camp are also quick to remind anyone willing to listen that the major economies of the world are now joined at the hip. As such, just like what happened to the world when the U.S. mortgage market melted down, what happens to Japan also happens to Europe, the U.S. China etc.
To be sure, there are more than a few gaping holes in this argument, not the least of which is the fact that the financial crisis that took down asset prices around the globe is not even remotely the same as a natural disaster that hit a single area. But, given that the bears are on the verge of something big happening for them, they appeared disinterested in getting too bogged down with an abundance of facts. So, “joined at the hip” appears to be the battle cry and they are sticking with it.
Besides the obvious question of how a natural disaster several thousand miles away is going to impact sales at Home Depot or JC Penney, there is another issue we’d like to present to those leaning toward the dark side at the present time. If the world’s economies are indeed joined at the hip, then why hasn’t the world spent the last 20 years slogging through the same recession that has kept Japan spinning its wheels for what has seemed like an eternity?
The answer, as you have probably guessed, is that although the world has become a smaller place thanks to global trade, technology and communications, all of the world’s economies are not one and the same. While it is true that the economic cycles of places like the U.S. and China may indeed impact the economies of other countries, we should recognise that the difficulties seen in places like the PIGI’S has clearly not had a dramatic impact on even the Eurozone, let alone the U.S. or China.
Given the tortorous ride the bears have been on for much of the past six months, we can’t really blame anyone looking at the glass as having little water in it for wanting everyone to see things their way for a while. And although yesterday’s late-afternoon rally did manage to punch up the numbers a bit, it is hard to ignore the feeling that this market is likely to head lower for a while.
However, before you get too comfy with a new all-short-all-the-time mentality, it is important to keep in mind that while markets are indeed joined at the hip as they react to tragedies such as we are seeing now, they don’t necessarily stay that way. In the past, we have seen world markets plunge as traders respond to the disaster. However, after the reactionary dive, the markets tend to recover swiftly as people recognise that the world will move forward and that the sun will indeed come up tomorrow.
So, while we can certainly understand where the bears are coming from and we will admit that all of this bad news could certainly put John and Jane Q. Public in a funk, which, in turn could cause the U.S. to slow a little, we’re not sure this is the time to toss everything aside and assume that the bull market has ended. However, we are most certainly willing to keep an open mind on the subject.
Turning to this morning… Stock markets around the globe are down hard on news of a third explosion at the Fukushima nuclear facility in northern Japan. Reports indicate that a fourth reactor is now in trouble and that radiation being emitted is now reaching dangerous levels.
On the Economic front… The Empire Manufacturing Index (designed to indicate the state of the manufacturing sector in the New York region) for March was reported at 17.5, which was above the consensus expectations for a reading of 17.06.
Next up, the government reported that Import Prices for the month of February rose by +1.4%, which was above the consensus for an increase of +1.0%. Export prices rose by +1.2%, below last month’s revised level of +1.3% (January: +0.6%).
Thought for the day: Consider sending positive thoughts to those in need…
Here are the Pre-Market indicators we review each morning before the opening bell…
- Major Foreign Markets: Australia: -2.13% Shanghai: -1.38% Hong Kong: -2.86% Japan: -10.55% France: -3.96% Germany: -4.68% London: -2.52%
- Australia: -2.13%
- Shanghai: -1.38%
- Hong Kong: -2.86%
- Japan: -10.55%
- France: -3.96%
- Germany: -4.68%
- London: -2.52%
- Crude Oil Futures: -$3.69 to $97.50
- Gold: -$36.50 to $1388.50
- Dollar: higher against the Yen, Euro and Pound
- 10-Year Bond Yield: Currently trading at 3.237%
- Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: -33.51 Dow Jones Industrial Average: -259 NASDAQ Composite: -64
- S&P 500: -33.51
- Dow Jones Industrial Average: -259
- NASDAQ Composite: -64
Wall Street Research Summary
- Chevron (CVX) – BAC/ML
- Corn Products (CPO) – BMO Capital
- Kirby Corp (KEX) – Cantor Fitzgerald
- Southern Company (SO) – Citi
- Impax Labs (IPXL) – Cowen
- Lowe’s (LOW) – FBR Capital
- Noble Corp (NE) – Goldman Sachs
- Atwood Oceanics (ATW) – Goldman Sachs
- Cabot Oil & Gas (COG) – Goldman Sachs
- Noble Energy (NBL) – Goldman Sachs
- Pioneer Natural (PXD) – Goldman Sachs
- Berry Petroleum (BRY) – Goldman Sachs
- Exxon Mobil (XOM) – Goldman Sachs
- Netflix (NFLX) – Goldman Sachs
- Ryder Systems (R) – Jefferies
- Entergy (ETR) – Jefferies
- Seaspan (SSW) – Jefferies
- American Tower (AMT) – UBS
- Crown Castle (CCI) – UBS
- Campbell Soup (CPB) – Bernstein
- Occidental Petroleum (OXY) – Removed from Conviction Buy at Goldman
- Devon Energy (DVN) – Goldman Sachs
- Bill Barrett (BBG) – Goldman Sachs
- Murhpy Oil (MUR) – Goldman Sachs
- Intel (INTC) – Nomura
- Nokia (NOK) – Estimates reduced at Oppenheimer
- Curtiss-Wright (CW) – RBC Capital
- L-3 Communications (LLL) – Stifel Nicolaus
Long positions in stocks mentioned: INTC
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