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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. By all accounts, Tuesday probably should have been a day where stocks got smacked around a bit. It should have been a day that placed some doubt at the center of the economic recovery theme. And it should have been a day where the bulls began to question their conviction. But instead of a rout based on some surprisingly bad consumer news and an overbought condition, the Dow dropped just 12 little points and the NASDAQ actually weaseled its way to a new cycle high.
Although the Case Shiller report on home prices was actually better than expected – or shall we say, not as bad as people might have expected – the Conference Board’s consumer confidence index was not. With hordes of analysts looking for an improvement in the economy and a fair amount of data to back up the idea, investors were not really expecting to see the consumer’s mood take a dive.
But dive it did as the consumer confidence index fell to 46.6 in July. This was down from 49.3 in June and represented the second straight monthly decline, which isn’t exactly the stuff that solid economic recoveries are made of. Digging into the data, we see that the current conditions reading fell to 23.4 from 25 in June, which was the lowest level since March. And then the expectations component fell to 62 from 65.5. But the big problem appeared to be the job availability component, which fell to its lowest level since – wait for it – February 1992!
When noodling on the confidence data, a logical extension would be that if the recovery does not create jobs – and fairly soon – the economy could be looking at a double-dip in the future. It would also be logical to assume that if we start to see the potential for a “W” bottom in the economy, the stock market might follow suit. And as such, all those bears still talking about a new low might quickly envision a scenario where our furry friends would be dancing in the streets.
It is this type of glass-is-completely-empty thinking that bubbles up when something like the consumer confidence report falls flat on its face. And with the market obviously extended, this is also the type of situation where the buyers have a tendency to stand aside and let the bears have their fun for a while.
But despite a pretty decent setup for our friends in fur, the bears were not able to capitalize yesterday. Yes, there was a run or two to the downside that looked like they might gain some steam – especially the one around midday. However both attempts fizzled almost as quickly as they began as it appears that the fund buyers still have some cash to spend and are willing to do so on each and every dip in stock prices.
Turning to this morning, orders for Durable Goods came in below expectations at -2.5% vs. -0.6% and May’s numbers were revised lower to 1.3% from 1.8%. However, the Nondefense capital goods orders ex-aircraft, which a proxy for business investment, rose 1.4%. This was the second straight monthly increase and brought the 3-month annualized rate to +0.4%, which is a huge improvement from the -44.2% rate of decline seen in March.
Running through the rest of the pre-game indicators, the major overseas markets are mixed by region with the majority of Asia seeing profit taking while Europe is higher. Crude futures are moving down with the latest quote showing oil trading off by $1.45 to $65.78. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.66%, while the yield on the 3-month T-Bill is trading at 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to another lower open. The Dow futures are currently off by about 50 points; the S&P’s are down by about 7 points, while the NASDAQ looks to be about 10 points below fair value at the moment.
Try doing something nice for someone today (for no reason at all) and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
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