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Daily State of the Markets To listen to an Audio Version of the report, click on the Play button below: |
Good morning. After a two-day hiatus of sorts, the bulls got back to work yesterday. While the bears made a game of it in the final hour and there were no big round numbers breached on a closing basis, our heroes in horns have to be pleased that they were able to push on to new cycle-highs in all of the major indices.
The day got started on an upbeat note as the earnings season continued to come in better than expected on a top line basis, GE (GE) caught an upgrade from Goldman Sachs (GS), and the economic data was spun positively. Speaking of spin, the Chinese were able to reverse the negative implications of banks looking to lend less; turning Wednesday’s story into a positive as the Shanghai Index rallied back to finish the week about where it began.
It was also a positive that demand was strong for the Treasury’s auction of $28 billion in 7-year notes yesterday. After the auctions for the 2-year and 5-year had been less than impressive, there was fear that the 7-year would follow suit and that borrowing costs would continue to rise. But, as has been the pattern recently, yields subsided as the week’s auctions drew to a close and the fear of higher costs was pushed to the back burner. However, given the sheer size of the government’s spending plans, this subject isn’t likely to stay away for long.
One of the biggest stories that didn’t make it to the popular press yesterday was the Bloomberg report of a significant buy signal for the Dow Jones Industrial Average. Bloomberg noted that the Dow has moved to more than 10% above its 200-day moving average. The key here is that after being more than 10% below the 200-day, a move to more than 10% back above the ma has led to higher stock prices 3 months and 12 months later in 18 of the 21 cases since 1921. The average gain 3 months after the signal has been +5.66% while the 12 month average gain is an impressive +17.65%. Thus, managers with cash on the sidelines may have been emboldened to put some money to work yesterday.
So armed with a new buy signal, a reprieve in China, some positive economic data, and earnings that have been largely better than expected, the bulls hit the buy button early and often on Thursday. However, the fear of big round numbers appeared to be too much as sellers used anything with three zeroes in it as a sell point – as in NASDAQ 2000 and S&P 1000.
To be sure, the dive into the close is nothing to sneeze at and did not go unnoticed. And the action in many of the market leaders was disconcerting. But for now, the bottom line is the indices will start this morning at a new high for this cycle as we await word on the second quarter’s GDP numbers.
Turning to this morning, the GDP report has just been released so let’s get to it. The preliminary report shows that the economy fell by -1.0% during the second quarter, which was better than the estimates for a decline of -1.5%. However, Q1 was revised lower to -6.4% from -5.5%. Next, Personal Consumption was a bit light at -1.2% vs. -0.5% while inflation wasn’t a problem as the Price Index increased by +0.2% vs. +1.0% and the Core PCE was up 2.0% year-over-year versus 2.4%.
Running through the rest of the pre-game indicators, the major overseas markets are higher again in Asia and mixed in Europe. Crude futures are moving down with the latest quote showing oil trading lower by $0.08 to $66.86. On the interest rate front, we’ve got the yield on the 10-yr trading lower at 3.59%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. have reversed on the GDP report and are now pointing to a lower open. The Dow futures are currently off by about 34 points; the S&P’s are down by about 4 points, while the NASDAQ looks to be about 6 points below fair value at the moment.
Enjoy your Friday, have a pleasant weekend, and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
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