The bears didn’t give the bulls a chance for a reprieve off of the technical support at S & P 1088. After falling hard in early trading on Wednesday, stocks gapped below support on Thursday. Many continued to blame the Fed for not doing enough, as the reason for the market decline. However, yesterday was pushed lower by three independent factors. The first was the most obvious, Weekly Jobless Claims. Hopes (and I do mean hopes, not a real projections) were for claims to tick back down to the 460,000 level they were at prior to the previous week’s upside surprise. That number was revised even higher to 482,000. This past week’s claims rose to 484,000. That’s not only a bad number, but a tick in the wrong direction. Continuing claims were 4.452 million, down slightly from 4.570 million. However, this number represents individuals rolling off of the benefits and does not reflect the numbers that are going onto the “extended” benefits program. We all know that jobs aren’t forthcoming. While we applaud the Fed’s efforts to maintain a steady balance sheet at our projected target of $2.3 trillion, it is not enough to stimulate new jobs. In fact, it’s not really the Fed’s area of expertise. Job stimulus falls in the realm of Congress and fiscal policy. As we’ve mentioned many times, those individuals on the Hill have no intention of cooperation ahead of an election. I will put a positive spin on elections down the road. Unlike the 2008 elections, candidates aren’t arguing over what to do about healthcare, housing, financial reform, homeland security, wars in Iraq and Afghanistan, etc. There is only ONE platform on which candidates are running… jobs. Incumbents will be complaining that the opposition has stopped progress. Challengers will be saying they can do a better job. In either case, no matter which party wins or who controls which house, the newly elected Congress will have their feet held to the fire to come up with a stimulus that creates jobs. Argue all you want, the clock is ticking on each elected official to get something passed.
Earnings and expectations were also a factor in the market’s weakness. Top of that list has got to go to John Chambers and Cisco CSCO (-10.0%). Cisco may have beat by a penny, but this is a company that typically guides analysts to a level that they can beat by 2c to 5c, so beating by a penny is a disappointment. Chambers said that customers were sending mixed signals and that the future faced growing uncertainty. Wall Street does not like that kind of language, and it was quite evident in the beating Cisco’s stock took and it was sufficient to have coattails beyond Tech to the overall outlook on the economic recovery. There were other negative individual stock stories. General Motors took a positive and turned it into a negative after the company posted a $1.3 billion profit, but also announced the planned resignation of the Chairman and CEO Ed Whitacre. GM was widely expected to have an IPO, which it will likely announce shortly. However, instead of a company with solid and known leadership at the helm, GM will be coming public with a well-liked, but untested CEO, Dan Akerson. When the public owns 60% of the company, an uncertain offering is not a positive. Ahead of today’s Retail Sales report, Kohl’s Corp. KSS (-2.7%) reported earnings that topped expectations. However, the company warned that the third quarter and the year may miss expectations due to the slow economy. The S & P Retail Index, RLX, fell 2.0%.
The third catalyst was yet another negative from a sector from which we had little hope of hearing good news, but really didn’t want to hear growing negative news. Realty Check, or maybe “reality check”, released figures showing evidence that the “shadow inventory” may be about to increase dramatically. Between Fannie Mae, Freddie Mac, and the FHA, approximately 235,338 homes were in inventory. The big banks don’t report the numbers the same way. Using the bank dollar amount held and median price of a home, Moody’s put the repossessions at 203,665 homes. Add them all up and the report showed shadow inventory of 540,000 versus the existing home sales number and it is more than the number of homes sold in June. The report clearly had a negative bent, although I would say that banks moved to maintain a level of homes in the pipeline after the stimulus helped absorb some of the real inventory. In other words, the banks know those homes need to be foreclosed on, but don’t want to act until they have a reasonable marketplace to put those homes up for sale. So the good news is that the stimulus has helped absorb inventory. The bad news is that there is plenty more where that came from.
The 30-year Treasury auction went a little bit better than expected, and that helped the long end perform a little better than the short end yesterday. The Dollar rally continued, which is what one would expect if deflation fears expand, but it was clearly tempered compared to the prior session. Technically, the uptrend had broken the sequentially higher lows, the uptrend line, and its 10-week moving average in the S & P. The next support starts from the little gap up at 1069 down to the mid-July low of 1057. The S & P slipped to 1076 and showed some signs of holding ahead of a very busy economic calendar due out today. The key number is on Retail Sales for July, expected to increase 0.5%. However, the Business Inventory report for June, expected to rise 0.2%, could cause more of a revision in Q2 GDP if it is way off from projections. Also, the mid-August University of Michigan preliminary sentiment index is expected to show an increase to 69.0 from 67.8. There are enough data that we may have seen traders who jumped in on the short side protect those quick profits. The data are still extremely important, but expectations should remain low for any upside surprises.
The bears didn’t give the bulls a chance for a reprieve off of the technical support at S & P 1088. After falling hard in early trading on Wednesday, stocks gapped below support on Thursday. Many continued to blame the Fed for not doing enough, as the reason for the market decline. However, yesterday was pushed lower by three independent factors. The first was the most obvious, Weekly Jobless Claims. Hopes (and I do mean hopes, not a real projections) were for claims to tick back down to the 460,000 level they were at prior to the previous week’s upside surprise. That number was revised even higher to 482,000. This past week’s claims rose to 484,000. That’s not only a bad number, but a tick in the wrong direction. Continuing claims were 4.452 million, down slightly from 4.570 million. However, this number represents individuals rolling off of the benefits and does not reflect the numbers that are going onto the “extended” benefits program. We all know that jobs aren’t forthcoming. While we applaud the Fed’s efforts to maintain a steady balance sheet at our projected target of $2.3 trillion, it is not enough to stimulate new jobs. In fact, it’s not really the Fed’s area of expertise. Job stimulus falls in the realm of Congress and fiscal policy. As we’ve mentioned many times, those individuals on the Hill have no intention of cooperation ahead of an election. I will put a positive spin on elections down the road. Unlike the 2008 elections, candidates aren’t arguing over what to do about healthcare, housing, financial reform, homeland security, wars in Iraq and Afghanistan, etc. There is only ONE platform on which candidates are running… jobs. Incumbents will be complaining that the opposition has stopped progress. Challengers will be saying they can do a better job. In either case, no matter which party wins or who controls which house, the newly elected Congress will have their feet held to the fire to come up with a stimulus that creates jobs. Argue all you want, the clock is ticking on each elected official to get something passed.
Earnings and expectations were also a factor in the market’s weakness. Top of that list has got to go to John Chambers and Cisco CSCO (-10.0%). Cisco may have beat by a penny, but this is a company that typically guides analysts to a level that they can beat by 2c to 5c, so beating by a penny is a disappointment. Chambers said that customers were sending mixed signals and that the future faced growing uncertainty. Wall Street does not like that kind of language, and it was quite evident in the beating Cisco’s stock took and it was sufficient to have coattails beyond Tech to the overall outlook on the economic recovery. There were other negative individual stock stories. General Motors took a positive and turned it into a negative after the company posted a $1.3 billion profit, but also announced the planned resignation of the Chairman and CEO Ed Whitacre. GM was widely expected to have an IPO, which it will likely announce shortly. However, instead of a company with solid and known leadership at the helm, GM will be coming public with a well-liked, but untested CEO, Dan Akerson. When the public owns 60% of the company, an uncertain offering is not a positive. Ahead of today’s Retail Sales report, Kohl’s Corp. KSS (-2.7%) reported earnings that topped expectations. However, the company warned that the third quarter and the year may miss expectations due to the slow economy. The S & P Retail Index, RLX, fell 2.0%.
The third catalyst was yet another negative from a sector from which we had little hope of hearing good news, but really didn’t want to hear growing negative news. Realty Check, or maybe “reality check”, released figures showing evidence that the “shadow inventory” may be about to increase dramatically. Between Fannie Mae, Freddie Mac, and the FHA, approximately 235,338 homes were in inventory. The big banks don’t report the numbers the same way. Using the bank dollar amount held and median price of a home, Moody’s put the repossessions at 203,665 homes. Add them all up and the report showed shadow inventory of 540,000 versus the existing home sales number and it is more than the number of homes sold in June. The report clearly had a negative bent, although I would say that banks moved to maintain a level of homes in the pipeline after the stimulus helped absorb some of the real inventory. In other words, the banks know those homes need to be foreclosed on, but don’t want to act until they have a reasonable marketplace to put those homes up for sale. So the good news is that the stimulus has helped absorb inventory. The bad news is that there is plenty more where that came from.
The 30-year Treasury auction went a little bit better than expected, and that helped the long end perform a little better than the short end yesterday. The Dollar rally continued, which is what one would expect if deflation fears expand, but it was clearly tempered compared to the prior session. Technically, the uptrend had broken the sequentially higher lows, the uptrend line, and its 10-week moving average in the S & P. The next support starts from the little gap up at 1069 down to the mid-July low of 1057. The S & P slipped to 1076 and showed some signs of holding ahead of a very busy economic calendar due out today. The key number is on Retail Sales for July, expected to increase 0.5%. However, the Business Inventory report for June, expected to rise 0.2%, could cause more of a revision in Q2 GDP if it is way off from projections. Also, the mid-August University of Michigan preliminary sentiment index is expected to show an increase to 69.0 from 67.8. There are enough data that we may have seen traders who jumped in on the short side protect those quick profits. The data are still extremely important, but expectations should remain low for any upside surprises.