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Daily State of the Markets |
Stocks fell for the fourth straight session yesterday, making it the longest streak of consecutive down days since the bulls started to romp on March 10th. The S&P 500 is off just -3.5% from its high during this stretch and the argument can be made that this holiday-like week has contributed to the lack of upside. However we would be remiss if we didn’t point out that since the bulls haven’t shown up for work in nearly a week, this pullback appears to be a bit different from anything we’ve seen so far.
Stocks basically meandered about for much of the day before succumbing to a sell program or two during the last half-hour. The lack of direction seemed to be a function of the uncertainty surrounding the degree to which the global recovery has already been priced in and the fear that stocks may have gotten ahead of the economic reality.
Speaking of reality, the ADP Private Payrolls report provided some Wednesday morning. With the economy emerging from the recession it would be normal to hope that we might start to see some improvement in the jobs market. Normal, yes – but not necessarily rational. As you are probably aware, employment, which is all anybody’s going to be talking about over the next 24 hours, is a lagging indicator. Companies cut payrolls as things get bad and then don’t expand them until everybody becomes convinced that the economy has recovered.
So, while it would be really nice to see some signs that the jobs market is improving right now, it just isn’t a realistic expectation. What we should probably expect is more of what we saw yesterday such as the Challenger report showing job cuts were down 21% in August to just 76,456 (versus July’s 97,373) and that job cuts are -13.8% lower than at this time last year. In short, the job market is still in “things are less bad” mode, so please don’t get your hopes up for job growth anytime soon.
Which brings us to the current market malaise. After sprinting higher to the tune of +52.4% in just four and one-half months, which, by the way, is the fastest rise in the market since the rebounds of the Great Depression era, one of the big concerns in the market is that prices have gotten ahead of the fundamentals.
We’ve argued that the biggest pop since the 1930’s isn’t all that surprising after the biggest decline as well as the worst recession since the 1930’s. But still, you know the way Wall Street works; once an idea becomes popular, logic sometimes gets tossed aside – which, I believe is what got us into the whole mortgage backed, synthetic derivative mess in the first place.
Another area of concern at the present time has to do with the health of the banking sector. After a lot of doubling, tripling and quadrupling in response to the big banks not going belly up, investors are starting to ask questions about those toxic assets that everyone made such a fuss about last year. And then there’s the issue of commercial real estate, and another round of mortgage resets, and the end to the foreclosure moratorium, etc. Thus, a little pullback in the sector isn’t exactly surprising.
Turning to this morning, Weekly Jobless Claims came in at 570K, which was a smidge higher than the estimate for 564K and last week’s total of 574K. Continuing Claims were 6.234M vs. 6.13M. In addition, the retailers are reporting their same-store sales comparisons this morning that don’t seem to be too bad.
Running through the rest of the pre-game indicators, the foreign market are a mixed bag with China higher but most of Asia lower and Europe up a bit. Crude futures are moving up with the latest quote showing oil trading higher by $0.75 to $68.80. On the interest rate front, we’ve got the yield on the 10-yr trading down to 3.34%, while the yield on the 3-month T-Bill is trading at 0.13%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 40 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 10 points above fair value at the moment.
Today’s Earnings Before the Bell:
Ciena (CIEN) – Reported -$0.05 vs. -$0.13 Del Monte (DLM) – Reported $0.30 vs. $0.04 Jackson Hewitt (JTX) – Reported -$0.67 vs. -$0.69
Upgrades/Downgrades/Brokerage Research:
Siemens (SI) – Upgraded at Bernstein Hovnanian (HOV) – Downgraded at Credit Suisse Deutsche Telekom (DT) – Upgraded at Credit Suisse Temple Inland (TIN) – Target increased at Deutsche Bank Harmony Gold (HMY) – Downgraded at JP Morgan Deere & Company (DE) – Downgraded at JP Morgan Franklin Resources (BEN) – Upgraded at Keefe, Bruyette & Woods Zumiez (ZUMZ) – Upgraded at William Blair
Long positions in stocks mentioned: none
Try smiling at everyone you meet today and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
For more “top stock” portfolios and research, visit TopStockPortfolios.com
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