There was a lot of economic news out yesterday that seemed to be overshadowed by big headlines. However, the data were important. Inflation remains at bay with the headline CPI falling 0.2% in May. The core reading, ex-food and energy, rose just 0.1%. Both of these numbers were right in line with expectations, as were the year-over year figures. Headline consumer inflation rose 2.0%, while the core rate inched up just 0.9%. There was a negative surprise in the Weekly Jobless Claims figure. The 12,000 rise was on top of a small upward revision. The week ending June 12th came in at 472,000 versus 460,000 the week prior. Expectations have been glued at 450,000, perhaps more wishful thinking than anything else. To some extent, this small increase confirms what we’ve seen from the employment component of the early June regional Fed surveys, which is that there has been a small dip in employment demand. For example, the NY Fed Empire Index showed employment falling from 22.37 to 12.35, although still a positive number. Yesterday’s Philly Fed Employment Index for June showed that component fall to -1.5 from +3.2. Therefore, it does look like jobs in June were tougher to come by. This was a part of the negative sentiment weighing on the markets yesterday. Wells Capital Management put out a report and was on CNBC with a chart showing the market correlation between Weekly Claims (inverse) and the stock market since 2000. Employment has been at the forefront of investor focus for some time now. However, I’d point out that a decline in claims would indicate economic strength a little further down the road, as an indication that the unemployment rate was dropping. It’s a “lead indicator” of where jobs are headed. The stock market is also a “lead indicator” of where the economy is headed. The two go hand in hand, so I’d say they were “coincident” with one another, not exactly one leading the other.
The headline Philly Fed Index was another major disappointing economic number, falling to 8.0 from 21.4. Expectations were for a small downtick to 20.0. However, the drag on the index was mostly all prices. The Prices Paid Index fell precipitously to 10.0 from 35.5 and the Prices Received fell to -6.5 from +3.5. However, looking at the data as a test for how the core manufacturing business is going, it’s better than the headline would indicate. Shipments slipped fractionally to 14.2 from 15.8. This helped build inventories a little, increasing from -7.9 to +4.6. The most important number was that the New Orders Index rose to 9.0 from 6.1. Without continued modest demand, we’d have to question the strength of the recovery, not that anyone is expecting a strong surge in economic activity. Some of the growth went into inventory, but that number has been oscillating up and down around the zero line. It will help with GDP, but isn’t about to cause an increase in manufacturing jobs. I’d still look at the Philly Fed Index as a small positive for the market, although it clearly wasn’t taken as one on the day.
The Euro had another mixed session, dipping below the prior day’s intraday low, but once again holding above 1.2222 and then rallying late in the day to close at a new rally high approaching 1.24. The cause for the strength was that the Spanish debt auction went fairly well. The bid to cover was 2.43, although they were priced well. London reported a little better retail sales figure than anticipated. That gave the European markets a small boost, aiding in the support for our market. We still haven’t lost the close tie with the Euro. The Dollar Index fell to its lowest level since May 25th. That eased pressure on the “risk trade”. However, the late-day surge in the averages left the Russell 2000 still in the red. Economically sensitive groups were mixed, with Tech doing well and the Retailers bringing up the rear. One sector feeling the heat was Financials, specifically the Banks and Brokers. As financial reform pushes through committee, the rules could hurt profitability. One of the biggest concerns for the industry is that changes could end up making brokers liable for suggestions when recommending funds. That would increase compliance costs and may limit recommendations. These Financial stocks are likely to remain mired in waters as pure as those off the coast of Florida until the final bill is resolved. Meanwhile, the Financial Sector SPDR, XLF, is still floating around between 14 and 15. We’re okay as long as we don’t start accelerating through the support just below 14.
A late day, very late day, spurt pushed the averages into the green. After a very busy week on the economic calendar, today there is a void of any new news. Friday’s had been leaning toward favoring the bears, but went counter-trend last week. We may see worried shorts again this Friday, as the bad news out of Europe really hasn’t been able to gain any traction over the past few weeks. The market is looking forward to earnings season. The bulls are getting a bit more aggressive about buying weakness. This is what typically happens heading into the end of a positive quarter. The more the market moves off of the recent low, the more pressure fund managers will feel about joining the party. The S & P may have posted a small gain, but it was enough to stay above its rising 200-day moving average, which is now at 1109.58. The overall action has been constructive. Next week, we have an FOMC meeting. All indications are that the language will remain mostly the same, and that should be reassuring to investors. On the flip of a coin for a late Friday swing, I’m favoring the bulls. Happy Father’s Day!
There was a lot of economic news out yesterday that seemed to be overshadowed by big headlines. However, the data were important. Inflation remains at bay with the headline CPI falling 0.2% in May. The core reading, ex-food and energy, rose just 0.1%. Both of these numbers were right in line with expectations, as were the year-over year figures. Headline consumer inflation rose 2.0%, while the core rate inched up just 0.9%. There was a negative surprise in the Weekly Jobless Claims figure. The 12,000 rise was on top of a small upward revision. The week ending June 12th came in at 472,000 versus 460,000 the week prior. Expectations have been glued at 450,000, perhaps more wishful thinking than anything else. To some extent, this small increase confirms what we’ve seen from the employment component of the early June regional Fed surveys, which is that there has been a small dip in employment demand. For example, the NY Fed Empire Index showed employment falling from 22.37 to 12.35, although still a positive number. Yesterday’s Philly Fed Employment Index for June showed that component fall to -1.5 from +3.2. Therefore, it does look like jobs in June were tougher to come by. This was a part of the negative sentiment weighing on the markets yesterday. Wells Capital Management put out a report and was on CNBC with a chart showing the market correlation between Weekly Claims (inverse) and the stock market since 2000. Employment has been at the forefront of investor focus for some time now. However, I’d point out that a decline in claims would indicate economic strength a little further down the road, as an indication that the unemployment rate was dropping. It’s a “lead indicator” of where jobs are headed. The stock market is also a “lead indicator” of where the economy is headed. The two go hand in hand, so I’d say they were “coincident” with one another, not exactly one leading the other.
The headline Philly Fed Index was another major disappointing economic number, falling to 8.0 from 21.4. Expectations were for a small downtick to 20.0. However, the drag on the index was mostly all prices. The Prices Paid Index fell precipitously to 10.0 from 35.5 and the Prices Received fell to -6.5 from +3.5. However, looking at the data as a test for how the core manufacturing business is going, it’s better than the headline would indicate. Shipments slipped fractionally to 14.2 from 15.8. This helped build inventories a little, increasing from -7.9 to +4.6. The most important number was that the New Orders Index rose to 9.0 from 6.1. Without continued modest demand, we’d have to question the strength of the recovery, not that anyone is expecting a strong surge in economic activity. Some of the growth went into inventory, but that number has been oscillating up and down around the zero line. It will help with GDP, but isn’t about to cause an increase in manufacturing jobs. I’d still look at the Philly Fed Index as a small positive for the market, although it clearly wasn’t taken as one on the day.
The Euro had another mixed session, dipping below the prior day’s intraday low, but once again holding above 1.2222 and then rallying late in the day to close at a new rally high approaching 1.24. The cause for the strength was that the Spanish debt auction went fairly well. The bid to cover was 2.43, although they were priced well. London reported a little better retail sales figure than anticipated. That gave the European markets a small boost, aiding in the support for our market. We still haven’t lost the close tie with the Euro. The Dollar Index fell to its lowest level since May 25th. That eased pressure on the “risk trade”. However, the late-day surge in the averages left the Russell 2000 still in the red. Economically sensitive groups were mixed, with Tech doing well and the Retailers bringing up the rear. One sector feeling the heat was Financials, specifically the Banks and Brokers. As financial reform pushes through committee, the rules could hurt profitability. One of the biggest concerns for the industry is that changes could end up making brokers liable for suggestions when recommending funds. That would increase compliance costs and may limit recommendations. These Financial stocks are likely to remain mired in waters as pure as those off the coast of Florida until the final bill is resolved. Meanwhile, the Financial Sector SPDR, XLF, is still floating around between 14 and 15. We’re okay as long as we don’t start accelerating through the support just below 14.
A late day, very late day, spurt pushed the averages into the green. After a very busy week on the economic calendar, today there is a void of any new news. Friday’s had been leaning toward favoring the bears, but went counter-trend last week. We may see worried shorts again this Friday, as the bad news out of Europe really hasn’t been able to gain any traction over the past few weeks. The market is looking forward to earnings season. The bulls are getting a bit more aggressive about buying weakness. This is what typically happens heading into the end of a positive quarter. The more the market moves off of the recent low, the more pressure fund managers will feel about joining the party. The S & P may have posted a small gain, but it was enough to stay above its rising 200-day moving average, which is now at 1109.58. The overall action has been constructive. Next week, we have an FOMC meeting. All indications are that the language will remain mostly the same, and that should be reassuring to investors. On the flip of a coin for a late Friday swing, I’m favoring the bulls. Happy Father’s Day!