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Daily State of the Markets Publishing Note: Given the shortended trading session day on Friday, we will not publish a “Daily State” report unless conditions warrant. Regular reports will return Monday morning. Good morning. Investor sentiment is one of the key ingredients to understanding the stock market at any given point in time. Put simply, if investors are feeling confident about the outlook for the economy, the market, and the stock they are about to purchase (assuming anyone still invests in individual stocks these days), they are more willing to pay up for the company. If investors are confident, they will pay a higher multiple for earnings and will make additional purchases of their favorite positions if and when those stocks pull back. However, when confidence is shaky, purchases tend to be smaller, investors are more careful about the timing of their buys, and multiples tend to be heavily scrutinized. In other words, nobody wants to pay up for a company if they are concerned about what might be happening to the macro environment. Speaking of the macro environment, confidence killers abound at this point in time. In short, there has been something to kill the mood each and every day lately. Whether we’re talking about interest rates in Spain, a negative comment from Moody’s, Fitch, or S&P, the latest thoughts from German leaders, or the failure of our elected officials in Washington – it seems there is always something acting as downer. From a big-picture standpoint, the goings on in Spain are the latest buzz kill. While we have certainly grown accustomed to news of rising rates in Europe, the results from the Spanish T-Bill auction was an eye-opener. In case you don’t spend your mornings perusing the happenings across the pond, you should know that the yields demanded by investors lending money to Spain for the next 3 months more than doubled on Tuesday. Last month’s 3-month T-Bill auction produced yields of 2.292%, which in comparison to the U.S. and Germany was quite high. But yesterday, the very same T-Bill was priced to yield 5.11%. Yowza! To be sure, a 2.2X spike in yields on 3-month T-Bills in just one month’s time is a problem. But wait, there’s more to this story. Tuesday’s yield of 5.11% was 0.70% higher than… wait for it… Monday afternoon’s pricing! Yep, that’s right, the yield being demanded to hold 3-month paper in Spain jumped 16% in less than a day and 123% in one month. So, it is safe to say that there is something going on here, which, of course does not inspire confidence going forward. Then there is a not-so small issue with the EFSF, which is also rapidly becoming a drag on the market’s mood. You remember the EFSF, don’t you This is that bailout fund that as European leaders told us a few weeks back, would be leveraged up to between four and five times its current size so that it could help stabilize the contagion that is spreading from Greece to Italy to Spain and now France. But there is one slight problem with the plan for the new-and-improved EFSF – it hasn’t attracted a dime of new money. And if no one is willing to put money in the EFSF, it obviously can’t be “leveraged up” to four or five times. Oh, and if the thing isn’t levered up, how is it going to help again Even a headline that hit Tuesday, which at first blush was viewed as a positive, wound up being a bummer. When the IMF announced that it was establishing new lines of credit for member countries (read Europe’s problem countries that can’t borrow money in the bond market) to utilize, the market’s first reaction was quite positive. The DJIA popped up more than 100 points in a matter of minutes and was nearly 150 points higher by lunchtime. However, when the details of how much money was actually being made available via the IMF’s new LOC’s, it quickly became obvious that this was not the “bazooka” the bulls have been looking for. And on the subject of the “bazooka” (aka a globally coordinated response by the big central banks of the world that will present limitless lending to countries in need), the market is beginning to lose confidence in the idea that the elusive big gun will ever be introduced, let alone fired. I could go on (and on) about the things that are killing investor confidence right now. But with family starting to gather later today and a to-do list as long as my arm, I’d best cease and desist with the Debbie Downer routine and start preparing for the Thanksgiving feast. Turning to this morning… The markets have been treated to a slew of new confidence killers overnight. The Fed is now officially worried about Europe and has announced a new round of ‘global shock’ stress tests for the biggest banks. China’s Flash PMI dove to 48, signalling contraction. Europe’s PMI also showed slowdowns in place. And a German bond auction was not well received. Awesome. On the Economic Front… Initial Claims for Unemployment Insurance for the week ending 11/18 rose by 2,000 to 393K. Continuing Claims for the week ending 11/11 came in at 3.691M vs. 3.627M. Next up, the Commerce Department reported that Durable Goods orders declined by -0.7% during the month, which was better than the consensus expectations for -1.1%. When you strip out the volatile orders for transportation, orders rose by +0.7%, which was above the consensus for +0.1%. The September reading was revised to +1.8% from +0.6%. Finally this morning, Personal Incomes rose by +0.4% in October, which was above the consensus expectations for an increase of +0.3%. Personal Spending (now called “Consumption”) for the month rose by +0.1%, which was below the expectations for +0.4% and below the Sept reading of +0.7%. Thought for the day… Here’s wishing everyone a wonderful Thanksgiving! Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell…
Wall Street Research Summary Upgrades:
Long positions in stocks mentioned: None For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer. Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results. |
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