Friday, August 13, 2010

Market Update 12:29pm $SPX

Market Update – stocks seem (and investors are) fatigued after a very volatile last few weeks of trading (SP500 was -3.6% week end 6/25, -5% 7/2, +5.4% 7/9, -1.2% 7/16, +3.5% 7/23, flat 7/30, +1.8% 8/6, and are on pace for -3.5% 8/13).  Q3 is still pacing for a pretty nice gain (up ~5%) but Aug has been ugly (dwn 1.8%).  We are coming off a pretty strong earnings season for the June-end companies (the reports hit mid Jul-to-early Aug) but the early reads for the Jul-end companies haven’t been so hot (CSCO, NVDA, KSS, JWN, etc).  US GDP has decelerated meaningfully, coming in at +5% in Q4:09, +3.7% in Q1:10, and +2.4% for Q2 (and subsequent data have knocked that +2.4% down to +1.1%).  In Europe, which arguably was the central cause of the slowing in activity seen in the month of June, the economic numbers have been pretty decent (see today’s Eurozone GDP release).  Sentiment has become very negative, w/the frequency of “double dip” forecasts rising.  The overhang from Washington hasn’t lifted any – the details around health care are still being hashed out (see the controversy over the MCR calculation this week, months after the actual legislation was signed into law by Obama) while fin reg reform could take several quarters to actually be implemented (keeping a lid on bank activity).  The tax outlook for ’11 remains very uncertain w/the Bush rates due to reset unless action is taken (and it doesn’t seem like Republicans and Democrats are close to a deal).  Even the mortgage market has been called into question w/this big Treasury event coming up next week (Tues Aug 17) where Republicans are expected to call for the abolition of Fannie and Freddie (note the article in the FT on Thurs where Bill Gross said that he wouldn’t buy MBS w/o the backing of Fannie and Freddie).  There was some thought that the pullback in risk over these last few weeks has been due to the publication of weak data/numbers that were measuring the economy during the peak of the European crisis and that conditions have improved since (something that CSCO said on its call – things weakened in mid-June into early Jul but finished out Jul pretty strong).  That said though, European sovereign uncertainty has come back as a market overhang (centered on Ireland in particular this week) – it will be interesting to see how much the ECB stepped back up its debt purchases this week (we get the data on Mon) – recall the WSJ reported this morning that the ECB was in the market this week buying Irish sovereign debt.

No comments:

Post a Comment