Investors pushed the market higher late Wednesday after the FOMC statement called the recovery tepid, but stayed with the rhetoric that it would not produce a double-dip recession. However, the overnight press was far more critical, making it seem as though a double-dip recession was upon us. On Tuesday and Wednesday, the bears had plenty of ammunition to make a case for a failing economy. It did gain a bit of traction in yesterday’s trading. Once again, the problems stemmed from Europe. France and Greece are seeing renewed strikes against the austerity measures. That sent the broader European markets dramatically lower throughout the day. The CAC 40 dropped 2.37%, the DAX lost 1.44%, and the FTSE 100 gave up 1.51%. The Euro started on a high note, making a run at 1.24. However, as the Euro-markets faded, so did the currency. The only reason why the Euro wasn’t much weaker was that domestic investors were even less enthusiastic about the Dollar. Everything is about how the US domestic economy will fare given the global efforts to save the EZ and new tax structures in Asia promoting growth, as well as what the market perceives is the strength, or lack thereof, in the domestic economy.
The two pieces of economic data out yesterday were actually better than expected. May Durable Goods Orders fell 1.1%. April was revised to a gain of 3.0% from 2.9%. Expectations were for a drop of 1.4%. Ex-transportation, orders were up 0.9%. Expectations were for a gain of 1.0%, so slightly light. However, April was revised to a loss of 0.8% instead of a loss of 1.0%. Therefore, since this is a rate of change off of the prior month, the two month combined performance was in line with expectations. Orders for machinery climbed, as manufacturing has been seeing an increase in updating equipment. The Morgan Stanley analyst thought the number was good enough to tweak his GDP forecast for the first quarter a little higher on this news. The MS economist is now looking for growth of 3.6%, up from 3.0% for today’s revision of GDP. Weekly jobless claims fell to 457,000 from a slightly upwardly revised 476,000. Expectations were for 463,000, so we finally got a downtick that came close to what was proving to be a “wishful thinking” target of 450,000. The number may have been just a touch better than expected, but the past several weeks had all been disappointments. Continuing claims fell to 4.548 million from 4.593 million. Expectations were for 4.550 million, so pretty much right on target.
The economy is clearly the catalyst. One “forward-looking” fear is that the House and Senate continue to meet on a daily basis on financial reform. Yesterday’s meetings raised fears that the larger capitalized banks may have to fork over capital to pay for Fannie Mae FNM (-2.2%) and Freddie Mac FRE (-1.6%). There is a bit of a time crunch. Negotiators wanted to have a completed proposed bill by this weekend, so that President Obama could present it to the G-20 over the weekend, as an example of how the US is moving aggressively to tighten the risk factors associated with the financial debacle. Congress wouldn’t be voting on it until just before July 4th. The rush to complete the negotiations may be forcing some of the intense debate aside, and that is being perceived as a net negative for the financial industry. You need not look any further than the top banks in the Dow, Bank of America BAC (-2.7%) and JP Morgan JPM (-2.2%). As has always been the case for the market, we don’t necessarily need the Financials to lead, although preferable, but we do need them to follow in order to have a strong bull phase. Yesterday, the weakness in the Financials contributed to the overall weakness in the market.
Yesterday was about traders turning tail on the economic forecasts and looking for an increasing risk of a double-dip recession. The hardest hit area was specifically related to the consumer-discretionary stocks. Nike NKE (-4.0%) swooshed lower after it missed revenue estimates. Nike also said an appreciating Yuan would hurt Nike’s profit margins. Bed, Bath, & Beyond BBBY (-5.6%) saw its bubble burst after the company said its 2nd quarter would be 59c to 63c versus expectations for 63c. BBBY earned 52c in the first quarter, topping expectations for 48c. The company blamed the “economic challenges” for its downbeat forecast. These two led a host of large department stores lower, as well as specialty retailers. Even the high-end was getting smacked hard. Macy’s M (-6.2%) was one of the hardest hit, although Nordstrom JWN (-4.0%) and Saks SKS (-3.4%) were in the mix. Specialty stores like American Eagle AEO (-3.7%), Aeropostale ARO (-1.9%), and Gap Stores GPS (-1.8%) were under pressure as well. Even the low end saw no relief. Costco COST (-2.1%) and WalMart WMT (-1.5%) fell along with the wave of pressure on the industry. This was perhaps the most disappointing development. The broader averages are all pulling back toward recent lows, but face a fairly decent cushion. The recent low in the S & P is at 1044. We closed at 1074. However, the S & P Retail SPDR did break its 200-day moving average for the first time since April 2009. Retail had been one of the major market leadership groups off of the lows in March 2009. Breaking to a new low for the year and undercutting support for the first time was the main catalyst for the broader market getting panicky. The news doesn’t quite seem to add up to the level of fear, but the level of fear certainly increased yesterday. Volume remains at the same summertime quiet level. It’s Friday, and that always seems to throw a wrench in the works. We’ll see if there is some follow-through today, as support becomes more of an issue at the current market level.
Investors pushed the market higher late Wednesday after the FOMC statement called the recovery tepid, but stayed with the rhetoric that it would not produce a double-dip recession. However, the overnight press was far more critical, making it seem as though a double-dip recession was upon us. On Tuesday and Wednesday, the bears had plenty of ammunition to make a case for a failing economy. It did gain a bit of traction in yesterday’s trading. Once again, the problems stemmed from Europe. France and Greece are seeing renewed strikes against the austerity measures. That sent the broader European markets dramatically lower throughout the day. The CAC 40 dropped 2.37%, the DAX lost 1.44%, and the FTSE 100 gave up 1.51%. The Euro started on a high note, making a run at 1.24. However, as the Euro-markets faded, so did the currency. The only reason why the Euro wasn’t much weaker was that domestic investors were even less enthusiastic about the Dollar. Everything is about how the US domestic economy will fare given the global efforts to save the EZ and new tax structures in Asia promoting growth, as well as what the market perceives is the strength, or lack thereof, in the domestic economy.
The two pieces of economic data out yesterday were actually better than expected. May Durable Goods Orders fell 1.1%. April was revised to a gain of 3.0% from 2.9%. Expectations were for a drop of 1.4%. Ex-transportation, orders were up 0.9%. Expectations were for a gain of 1.0%, so slightly light. However, April was revised to a loss of 0.8% instead of a loss of 1.0%. Therefore, since this is a rate of change off of the prior month, the two month combined performance was in line with expectations. Orders for machinery climbed, as manufacturing has been seeing an increase in updating equipment. The Morgan Stanley analyst thought the number was good enough to tweak his GDP forecast for the first quarter a little higher on this news. The MS economist is now looking for growth of 3.6%, up from 3.0% for today’s revision of GDP. Weekly jobless claims fell to 457,000 from a slightly upwardly revised 476,000. Expectations were for 463,000, so we finally got a downtick that came close to what was proving to be a “wishful thinking” target of 450,000. The number may have been just a touch better than expected, but the past several weeks had all been disappointments. Continuing claims fell to 4.548 million from 4.593 million. Expectations were for 4.550 million, so pretty much right on target.
The economy is clearly the catalyst. One “forward-looking” fear is that the House and Senate continue to meet on a daily basis on financial reform. Yesterday’s meetings raised fears that the larger capitalized banks may have to fork over capital to pay for Fannie Mae FNM (-2.2%) and Freddie Mac FRE (-1.6%). There is a bit of a time crunch. Negotiators wanted to have a completed proposed bill by this weekend, so that President Obama could present it to the G-20 over the weekend, as an example of how the US is moving aggressively to tighten the risk factors associated with the financial debacle. Congress wouldn’t be voting on it until just before July 4th. The rush to complete the negotiations may be forcing some of the intense debate aside, and that is being perceived as a net negative for the financial industry. You need not look any further than the top banks in the Dow, Bank of America BAC (-2.7%) and JP Morgan JPM (-2.2%). As has always been the case for the market, we don’t necessarily need the Financials to lead, although preferable, but we do need them to follow in order to have a strong bull phase. Yesterday, the weakness in the Financials contributed to the overall weakness in the market.
Yesterday was about traders turning tail on the economic forecasts and looking for an increasing risk of a double-dip recession. The hardest hit area was specifically related to the consumer-discretionary stocks. Nike NKE (-4.0%) swooshed lower after it missed revenue estimates. Nike also said an appreciating Yuan would hurt Nike’s profit margins. Bed, Bath, & Beyond BBBY (-5.6%) saw its bubble burst after the company said its 2nd quarter would be 59c to 63c versus expectations for 63c. BBBY earned 52c in the first quarter, topping expectations for 48c. The company blamed the “economic challenges” for its downbeat forecast. These two led a host of large department stores lower, as well as specialty retailers. Even the high-end was getting smacked hard. Macy’s M (-6.2%) was one of the hardest hit, although Nordstrom JWN (-4.0%) and Saks SKS (-3.4%) were in the mix. Specialty stores like American Eagle AEO (-3.7%), Aeropostale ARO (-1.9%), and Gap Stores GPS (-1.8%) were under pressure as well. Even the low end saw no relief. Costco COST (-2.1%) and WalMart WMT (-1.5%) fell along with the wave of pressure on the industry. This was perhaps the most disappointing development. The broader averages are all pulling back toward recent lows, but face a fairly decent cushion. The recent low in the S & P is at 1044. We closed at 1074. However, the S & P Retail SPDR did break its 200-day moving average for the first time since April 2009. Retail had been one of the major market leadership groups off of the lows in March 2009. Breaking to a new low for the year and undercutting support for the first time was the main catalyst for the broader market getting panicky. The news doesn’t quite seem to add up to the level of fear, but the level of fear certainly increased yesterday. Volume remains at the same summertime quiet level. It’s Friday, and that always seems to throw a wrench in the works. We’ll see if there is some follow-through today, as support becomes more of an issue at the current market level.