Friday, August 6, 2010

Afternoon -OVERVIEW-Market Update; Equity sectors$SPX

Market Update – stocks come for sale following this morning’s neg. jobs report and break through the 200day MA (at 1115).  The weakness is relatively broad, w/most major groups in the red (financials, tech, industrials, discretionary, energy are all off >1% and underperforming).  There weren’t a lot of whispers into today’s labor number, but there was an expectation that risks were to the upside (based on the labor component of the ISM this Mon the ADP release, and the fact that the temporary loss of extended unemployment benefits may have prompted people to find work in Jul).  However, private adds again disappointed (and there were revisions to the prior month as well).  There were some minor bright spots, like the uptick in manufacturing jobs and the fact that hours worked + income both came in ahead of plan.  In addition – the closely watched ECRI index rose this morning to a 6 week high.  All that said, the line of reasoning today is that today’s BLS release was neither strong enough to signal a recovering economy (some sell-side firms, like Goldman, took down their eco growth ests following the report) nor weak enough to prompt the Fed into taking incremental action at next week’s meeting (see below for an update on the Fed).  Keep in mind that while today’s trading is ugly, the sp500 is still up ~0.7% on the week (and is still up >7.5% QTD).  While there is some disapointment that the Fed won’t rush out further assistance imminently, the action in 2yrs (yields hitting fresh all time lows again), gold (up 1% and sitting just under the 50day MA), and the dollar (off ~0.8% w/the DXY heading towards the technically important 80 mark) all suggest that Bernanke will remain very accomodative for very long.  In terms of trading, the break under 200day prompted some pressing by quicker shorts but things have stabilized a bit; still not a ton of momentum to sell the tape off; buyers are hesitant as of noon and not stepping in on the dips to the extent they have been for the last few days. 

·         Equity sectors – Financials are the worst space in the market today, falling over 1.8% on weakness across the board, but particularly in the higher beta regional banks. Energy is the next worst sector, falling over 1.75% on weakness in E&Ps due to earnings out of ATPD and EOG. Services and drillers are also notably weaker as talk over what the new drilling regulations might entail. Industrials are slightly below the tape, moving down on weakness in the higher beta multis/machinery names as well as continued weakness in building products and truckers. Discretionary is down close to 1.5%, underperforming on weakness in some media names and education stocks. Telecom is off with the tape as strength in WIN (earnings) is offset by weakness in PCS. Tech is off with the tape as well, as strength in semis (SOX off 0.75%) gets offset by weakness in ADSK (downgraded at Jefferies) and JBL. Materials are off just under 1%, outperforming on strength in gold stocks and some metals thanks to a weaker dollar. Utilities are off just over 0.75%, outperforming on strength in PEG and ED (earnings and guidance raise). Healthcare is off less than 0.75%, outperforming on a bit of a defensive bid and continued strength in CI off earnings yesterday. Staples are the top sector in the market, off around 0.6% thanks to strength in KFT’s earnings

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