Monday, August 30, 2010

Overview of the Market 6:15pm $SPX ; Dont forget your parachutes before boarding this market

· Market Update – stocks steadily deteriorated throughout the session, as bulls failed to build on Fri’s rally; volumes were extremely light (lowest for the year on most measurements – see MVOLNYE Index on Bloomberg) as attendance and liquidity were impacted by the UK bank holiday and Labor Day (although volumes picked up a bit on the afternoon’s weakness).  The Bernanke remarks on Friday helped cause a steep decline in Treasuries (which led to an allocation into equities) and the INTC warning prompted short-covering in tech, but neither trend extended into today’s session – this lack of follow-through proved very disappointing for risk sentiment in general (the sp500 ended at its lows of the session, w/the last hour of the day in particular seeing a steep decline).  Buyers came in to scoop up Treasuries following Fri’s weakness while the semis more than gave up their gains.  All of the “wrong” groups led on the downside today (the highest beta/most economically sensitive stocks), w/small caps (R2K), steels (X, TIE, ATI), banks (esp. the SMID cap regionals), and semis leading the market lower.  There was some more news on the M&A and buyback front (COGT/MMM, INTC/Infineon, and GENZ/SNY for deals while HPQ, PLT, and QLGC unveiled buybacks), but the bigger picture story in the minds of investors remains unchanged – the economy is rapidly losing steam and there is near zero faith in the ability of governments/central banks to arrest the decline (there was at least one article in every major paper this weekend discussing how the economy was in a “double dip” recession and how the Fed was “out of bullets”; the inability of the BOJ to clamp down on the yen today isn’t helping market confidence in central banks).  In Washington, Obama held a press briefing (~1pmET) today to discuss the economy but failed to impress the markets (he reiterated his call for Congress to pass pending legislation aiding small businesses and other corners of the economy); there is a rising chorus of calls in the press for additional actions (either bringing back the homebuyers tax credit or a new stimulus plan).  The sell-side is starting to ratchet down estimates (a slew of companies cut INTC and other semi ests today after Fri’s warning while Morgan Stanley cut its H2 GDP forecasts and Barclays took down its S&P price target).  In terms of intra-day newsflow, the tape was quiet today.  An article on Stratfor noted market speculation that the governor of China’s PBOC defected and an American Banker article (published pre-open) weighed on the banks.  Technically, 1040 is the still the level to watch (recall it was very strong support last Wed and Fri).

  • · Equity sectors Financials were the worst sector in the market, falling 2.2% and led lower by regional banks on talk that the FASB could implement an overhaul on acctg standards for banks.
  • Discretionary was off over 1.75% on weakness in retail stores (particularly JWN, RL, JCP,and LTD) and auto parts (GT and AN). Industrials were off 1.65% on weakness in engine makers (CMI, PCAR, NAV), ag equip names (AGCO, DE), and truckers.
  • Energy was mostly in line with the tape, falling 1.5% as strength in natural gas gave support to some E&Ps. Utilities were off around 1.4% on weakness in AME, OKE, and CEG. Materials were also off 1.4% on weakness in steels (X off 4%), a few ferts (CF leading way lower on natgas strength), and paper/pulp stocks as investors reduced risk on the selloff. Telecom was off 1.25% on weakness in S, AMT, and PCS. Tech was off just under 1.25% on strength in HPQ and DELL (HPQ stock buyback), although semis continued to lag (SOX off around 2.5%).
  • Healthcare was off around 1.1%, outperforming on a safety bid and strength in some biotechs after GENZ rejected Sanofi’s bid for the company saying it was too low. Staples were off around 0.9%, outperforming on a defensive bid and strength in DF, PM, and MO.

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