OVERVIEW
· Market Update – a lot of moving pieces this morning in the market today. Weighing on stock prices: 1) weak US eco #s (specifically the durable goods and jobless claims); 2) continued worries around Greece (see below for details, but DJ is reporting that EU officials doubt whether Greece’s budget cut projections are achievable and the co pushed a debt deal into next week); 3) more selling in tech, specifically the semis (the SOX is down >3% this week, one of the weakest groups in the market); 4) Bernanke’s comments today are pretty much inline w/the House testimony from Wed, although his remark about the SEC looking into Goldman’s swap dealings w/Greece is raising some eyebrows and hurting sentiment. The one major bright spot for the market is the continued uptick in strategic M&A – the latest example is KO/CCE this morning and Bloomberg just reported that TMO is considering raising its bid for MIL to consummate a deal tomorrow.
· Desk Color – there continues to be more conviction/volume on days when stocks fall vs. the ones when they rise. That said, the selling pressure today isn’t huge and isn’t panicked; more a complete lack of buyers than real aggressive selling. Vanillas are reducing longs in aggregate, but orderly; shorts more comfortable laying out fresh exposure, but also not getting aggressive. Technicals being watched (from M Kraus): next support at 1085, and the 1076.75-1079.13 Feb 17 hourly bull gap.
· Equity Sectors – weakness across the board; financials, tech, health care, industrials, discretionary, staples, energy, utilities, materials, telecoms are all off >1%. Tech is one of the weakest groups, as worries about semi ordering/seasonality (Mediatek, etc) and the PALM miss are hurting sentiment (the trend in tech remains the same: good news prompts no reaction while any hint of negativity is prompting selling/shorting; tech longs very jittery and taking action on any bad news – see WDC on Wed). Financials are also weak, reversing a lot of their gains from Wed (credit sensitive names are weaker; not a ton of major news on the tape from the financial space; regional banks very weak and dragging the group lower). Capital goods stocks are for sale across the board after the poor durable goods report – TXT, FLR, MAS, FLS, EMR, CAT, etc, all down ~2%+. Retail has been a bright spot this week as earnings reports are received well (KSS and LTD are the latest w/#s and both are trading up; GME shares are down 8% and hurting retail performance). Health care is tracking pretty much inline w/the market (the ongoing WH HC summit being ignored as far as the stocks are concerned). Homebuilders continue to come for sale (they are off ~2% now and are down ~6% YTD).
· Best Performing SP500 stocks (from Bloomberg): CCE (earnings), ESRX (earnings), DPS (earnings + CCE), IRM (earnings), PCS (earnings), NEM (earnings), KSS (earnings), BMS, CF
weakest performing sp500 stocks (from Bloomberg): GME, KG, FITB, AMD, KO, CRM, AVP, RRD, KEY, CBS
· Commodities: Commodities are weaker across the board today, with the exception of gold which is up $3 to $1100 on reports by Pravda that China would purchase the remaining gold that the IMF has for sale. Oil is down sharply today, falling over $2.50 below $77.50. Natural gas is off 7c to $4.78, moving lower after the storage report. Copper is off 2% and near its lows of the day.
· FX: USD (DXY) is up 0.25% and near its highs of the day. The dollar is up 0.5% against the Euro. The dollar is also up close to 1.4% against the Pound and at its highs against it. The dollar is down 1.45% against the Yen and at its lows of the day. The Euro is also off nearly 2% against the Yen and at its lows.
· Corp Credit: Corp credit is lagging the market again today as IG spreads widen 3 bps and HY loses around ¾ of a pt.
· Treasuries: Treasuries rallied today as investors sold equities looking for safer assets. Yields on 2s dropped to 82 bps while yields on 10s fell to 3.64%. The 2-10 year spread flattened slightly to 282, now 9 bps from Monday’s all time high.
Catalysts to Watch
· Bernanke’s HH testimony – he started speaking before the Senate @ 10amET today.
· Health Care - televised bipartisan summit on 2/25 (started this morning).
· The House is hosting a hearing on Thurs discussing executive compensation.
· Sen Dodd is expected to unveil his proposed legislation for overhauling the nation’s financial regulatory framework soon (latest reports suggest early next week).
· Bond issuance – 1 more auction left: 7s 2/25
Economic Events – daily view
· Friday, Feb. 26th: US (GDP, PCE, Chicago PMI, Existing Home Sales); Eurozone (UK GDP, Eurozone CPI, German CPI); Other (n/a).
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