There were no real economic data to chew on. The National Federation of Independent Business, NIFB, released their optimism index, which showed a 1.8% increase in May to 92.2. Don’t get too excited. The IBD/TechnoMetrica Market Intelligence Economic Optimism Index fell 5.1% in June to 46.2 from 48.7. This is a June survey, so it may reflect the fact that the market fell over 10% throughout the month of May. Between the two reports, it was mostly a wash and had no influence on market trading. The Euro actually had a fairly calm day. After trading back down to 1.19 overnight, it edged through 1.20 before fading back to nearly unchanged on the day. It was almost eerie that the Euro wasn’t providing any direction on the day. Investors were left to fend for themselves to find news.
Absent anything else to focus on, the Fed Chairman’s comments caught the market’s attention. In an interview with ABC News, Bernanke was encouraged that the private sector could carry the transition between a government stimulus recovery and one that would be self-sustaining. However, it wasn’t like he was overly enthusiastic. If anything, his economic outlook was very much like our own. The economy is in for a slow jobless recovery. High unemployment could remain an issue well into 2011. Banks are recovering, but are “not completely healthy”. He called the financial reform package a “sensible” approach. Bernanke may be asked to further comment on his views when he speaks before the House Budget Committee today. There was no indication that the Fed Chairman was leaning toward a hike in the Fed Funds Rate anytime soon. He indicated that the mediocre outlook for the economy should be enough to keep the “exceptionally low rates for an extended period of time” comment around. If there was anything negative within his comments, it was that he did not see any concrete measures being taken by Congress to reduce the US deficit problem. We’re coming up against a midterm election. Nobody is going to vote to take away any programs or raise anybody’s taxes before November.
The market was mostly mixed, testing the recent May low across the averages in the morning, and then again in the afternoon. The Dow undercut its May 25th intraday low of 9774 by slipping to 9757. The NASDAQ made it a game of inches, falling less than a point under its May low of 2140. Tech was under the gun with Apple Inc. AAPL (-2.2%) down, even in the face of another analyst upgrade. Microsoft’s MSFT (-0.7%) shares fell after announcing plans to raise $1.15 billion in convertible debt. This Dow component was the worst performing stock of the 30 yesterday. The big drag on the Tech sector came after the Tech analyst at Susquehanna cut his rating on a host of Semiconductor stocks, citing signs of a weakening demand for PCs. The Philly Semi Index, SOX, closed on Monday below its 200-day moving average at 340.78. Yesterday, on the downgrades, the SOX broke the May low of 328 by less than 2 points. However, that break to a new low, and the drag on the overall NASDAQ that weakened that index, weighed heavily on the broader Tech sector and the market throughout much of the day. Any downtick in the Russell 2000 was poised to undercut its low, as it had pretty much closed right on support at 618. It fell closer to 600, but recovered to close back near the May low at 617. The S & P was the only major index to hold above its May 25th low, but by only 2 points.
Tech and Healthcare were the two major drags on the recovery attempt. However, one standout performance by the Financials helped the market in its turnaround effort. The Financial Sector SPDR, XLF fell to an intraday low of 13.70. This came very close to the February 5th low of 13.51, but held. The index reversed course, without the aid of Goldman Sachs GS (-0.7%), which faces a Financial Crisis Inquiry Commission subpoena. The real catalyst was JP Morgan (+2.9%). The Dow component started the day under pressure after Rochdale Securities cut its price target for the stock to $47 from $56. JP Morgan’s strong rally at the end of the day carried the Financials to a winning session. The XLF turned around and closed up 2.1% at 14.16 on the day.
The NASDAQ and Russell 2000 made excellent strides to reverse the session’s loss, but came up short. Meanwhile, the Dow, S & P, and the NYSE did close higher by better than 1.0% on the day. It was a “minor reversal day” to the upside. That means the indices made a lower low than the prior day and closed higher. It was important to see that the rally was rather broad based, even though it started late and did not leave an overwhelmingly positive advance/decline line. It was still much better than where it had been trading throughout the day. Volume was surprisingly weak on the way down considering the volatility and extent of the downside pressure, not to mention that it was breaking technical support. Yesterday, volume expanded to 1.65 billion on the NYSE from 1.42 billion and to 2.64 billion on the NASDAQ from about 2.2 billion. This expansion of trading on the upswing is a positive and critical component to the turn. We would need to see a big follow-through day to be more convinced, but it may not be in the cards right away. Yesterday took back what we lost the prior day. A lot will depend on the Euro and events going on in the European markets. Friday’s Retail Sales report for May could provide a surprise. The real catalyst will be earnings. Second quarter comparisons to a year ago should continue to be quite favorable. For that reason, and with a late July time target, we would look for a mediocre summer rally.
There were no real economic data to chew on. The National Federation of Independent Business, NIFB, released their optimism index, which showed a 1.8% increase in May to 92.2. Don’t get too excited. The IBD/TechnoMetrica Market Intelligence Economic Optimism Index fell 5.1% in June to 46.2 from 48.7. This is a June survey, so it may reflect the fact that the market fell over 10% throughout the month of May. Between the two reports, it was mostly a wash and had no influence on market trading. The Euro actually had a fairly calm day. After trading back down to 1.19 overnight, it edged through 1.20 before fading back to nearly unchanged on the day. It was almost eerie that the Euro wasn’t providing any direction on the day. Investors were left to fend for themselves to find news.
Absent anything else to focus on, the Fed Chairman’s comments caught the market’s attention. In an interview with ABC News, Bernanke was encouraged that the private sector could carry the transition between a government stimulus recovery and one that would be self-sustaining. However, it wasn’t like he was overly enthusiastic. If anything, his economic outlook was very much like our own. The economy is in for a slow jobless recovery. High unemployment could remain an issue well into 2011. Banks are recovering, but are “not completely healthy”. He called the financial reform package a “sensible” approach. Bernanke may be asked to further comment on his views when he speaks before the House Budget Committee today. There was no indication that the Fed Chairman was leaning toward a hike in the Fed Funds Rate anytime soon. He indicated that the mediocre outlook for the economy should be enough to keep the “exceptionally low rates for an extended period of time” comment around. If there was anything negative within his comments, it was that he did not see any concrete measures being taken by Congress to reduce the US deficit problem. We’re coming up against a midterm election. Nobody is going to vote to take away any programs or raise anybody’s taxes before November.
The market was mostly mixed, testing the recent May low across the averages in the morning, and then again in the afternoon. The Dow undercut its May 25th intraday low of 9774 by slipping to 9757. The NASDAQ made it a game of inches, falling less than a point under its May low of 2140. Tech was under the gun with Apple Inc. AAPL (-2.2%) down, even in the face of another analyst upgrade. Microsoft’s MSFT (-0.7%) shares fell after announcing plans to raise $1.15 billion in convertible debt. This Dow component was the worst performing stock of the 30 yesterday. The big drag on the Tech sector came after the Tech analyst at Susquehanna cut his rating on a host of Semiconductor stocks, citing signs of a weakening demand for PCs. The Philly Semi Index, SOX, closed on Monday below its 200-day moving average at 340.78. Yesterday, on the downgrades, the SOX broke the May low of 328 by less than 2 points. However, that break to a new low, and the drag on the overall NASDAQ that weakened that index, weighed heavily on the broader Tech sector and the market throughout much of the day. Any downtick in the Russell 2000 was poised to undercut its low, as it had pretty much closed right on support at 618. It fell closer to 600, but recovered to close back near the May low at 617. The S & P was the only major index to hold above its May 25th low, but by only 2 points.
Tech and Healthcare were the two major drags on the recovery attempt. However, one standout performance by the Financials helped the market in its turnaround effort. The Financial Sector SPDR, XLF fell to an intraday low of 13.70. This came very close to the February 5th low of 13.51, but held. The index reversed course, without the aid of Goldman Sachs GS (-0.7%), which faces a Financial Crisis Inquiry Commission subpoena. The real catalyst was JP Morgan (+2.9%). The Dow component started the day under pressure after Rochdale Securities cut its price target for the stock to $47 from $56. JP Morgan’s strong rally at the end of the day carried the Financials to a winning session. The XLF turned around and closed up 2.1% at 14.16 on the day.
The NASDAQ and Russell 2000 made excellent strides to reverse the session’s loss, but came up short. Meanwhile, the Dow, S & P, and the NYSE did close higher by better than 1.0% on the day. It was a “minor reversal day” to the upside. That means the indices made a lower low than the prior day and closed higher. It was important to see that the rally was rather broad based, even though it started late and did not leave an overwhelmingly positive advance/decline line. It was still much better than where it had been trading throughout the day. Volume was surprisingly weak on the way down considering the volatility and extent of the downside pressure, not to mention that it was breaking technical support. Yesterday, volume expanded to 1.65 billion on the NYSE from 1.42 billion and to 2.64 billion on the NASDAQ from about 2.2 billion. This expansion of trading on the upswing is a positive and critical component to the turn. We would need to see a big follow-through day to be more convinced, but it may not be in the cards right away. Yesterday took back what we lost the prior day. A lot will depend on the Euro and events going on in the European markets. Friday’s Retail Sales report for May could provide a surprise. The real catalyst will be earnings. Second quarter comparisons to a year ago should continue to be quite favorable. For that reason, and with a late July time target, we would look for a mediocre summer rally.