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Daily State of the Markets Good morning. After the near 10% correction (the S&P 500 fell -9.936% on a closing basis to be exact) that occurred from April 1 through Friday, it is safe to say that there wasn’t a whole lot of hope in the market. No, as of Monday morning, reality had become the dominant force. As in the reality that almost all of the economic reports in the U.S. had come in WTE (weaker than expected). As in China’s economy was no longer growing at a 10% rate. And as in the reality that there wasn’t going to be any easy answers for Europe’s debt mess. In fact, I noted in Tuesday’s morning missive that as of Monday’s close, reality was clearly winning the hope versus reality battle. But like springtime weather in the mountains, things can turn on a dime. And by the time Wednesday’s closing bell rang, hope had made an impressive comeback as the stock market finished with its best day of the year. Usually, when stocks spurt higher and the shorts fall all over themselves to cover, there is some sort of news or event to trigger the move. But make no mistake about it; Wednesday’s joyride to the upside was all about hope. The ECB did hold a meeting. But “Super Mario” left rates unchanged and failed to hint at anything more than the idea that the central bank stands ready to help out after European leaders do something (anything) or if things really start to go to heck in a hand basket again. And there was some economic data, but I’m not sure anybody besides us market geeks care about Nonfarm Productivity and/or Unit Labor Costs. No, while Greece has been the word recently, hope was clearly the word on Wednesday. First there was hope that the WSJ’s Jon Hilsenrath, who is widely viewed as being somewhat of a Fed mouthpiece, had gotten a scoop when he changed his tune on what the Bernanke Bunch may or may not do next. (In a weekend article Hilsenrath had stated that the Fed was on hold and then on Tuesday he opined that the Fed may be ready to consider additional action.) In short, it was this article that got the bulls’ juices flowing initially. You see, by now traders of all shapes and sizes know what to do with more Fed stimulus – it’s called the “risk on” trade. Given that this might be the third go-round here, traders know that you short the dollar (UUP) and then buy the Aussie and Canadian dollars (FXA and FXC) for your currency trade. Then you buy up the commodities (DBC) including oil (USO), copper (JJC), and the grains (JJC). Now mix in the equities of the U.S. (SPY) and the emerging markets (EEM). And then maybe sprinkle a little junk bond exposure (JNK) in for good measure. Voila, you’ve got yourself a risk trade that will work wonders for your portfolio when the Fed starts buying debt again. So needless to say, traders are hoping that “the Bernank” reprises something along the lines of QE or Operation Twist. Never mind the fact that the Fed’s Beige Book report presented what appeared to be a slightly more upbeat view of the economy. (The Beige Book said the US economy grew at “moderate pace” over the reporting period compared the “modest-to-moderate” language used in last report.) Never mind that Dallas Fed President Richard Fisher had laid out an impressive case of why the Fed is done on Tuesday night. Never mind the fact that interest rates are at all-time lows. Nope, if you believe, as so many apparently do, that the Fed is targeting asset prices (i.e. the stock and housing markets) in order to keep the consumer spending, then you can buy into the idea that Bernanke’s cavalry is about to mount up and ride to the rescue of the economy once again. (Oh, and those who favor this view may want to simply ignore the fact that the trillions spent so far haven’t really done all that much.) There was also hope on the Euro front yesterday as there was a report that leaders had concocted a way for the Eurozone to inject money directly into Spanish banks. And to make matters more interesting, this scheme would hold the country whose banks were receiving aid ultimately responsible for the capital infusion. But, and this is the best part, the “ultimate responsibility” (which sounds an awful lot like a liability to us) would not be counted as “debt” in terms of the country’s debt-to-GDP ratio. Brilliant! The key takeaway from Wednesday’s session was that hope clearly prevailed. But the question for today is if hope can continue to prevail if Mr. Bernanke fails to offer any hints about additional stimulus this morning on Capitol Hill. So don’t touch that dial, this is one show worth watching. Turning to this morning… Janet Yellen gave “hope” a boost last night. The Fed Vice Chairwoman gave a very dovish speech leading many to believe that Ben Bernanke will follow suit this morning on Capitol Hill and hint at additional stimulus. And word that the EU is not working on a bank rescue plan has been overlooked in response to China’s surprise rate cut. As a result, U.S. futures are pointing to a higher open. However, the key to the session will indeed be the words of Gentle Ben. On the Economic front… Initial Claims for Unemployment Insurance for the week ending 6/2 were reported at 377K, which was below the consensus estimate for 378K and also below last week’s revised total of 389k (up from 383k). Continuing Claims for the week ending 5/26 came in at 3.293M vs. consensus of 3.259M. Thought for the day… “Banking institutions are more dangerous to our liberties than standing armies” — Thomas Jefferson (1802) Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell… !========>
Positions in stocks mentioned: SPY, EEM Follow Me on Twitter: @StateDave!========> 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. One 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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