U.S. stocks wandered aimlessly the entire day…up, down, up, down -- you know the drill, eventually erasing the final rally in the waning 10 minutes of the session. There is zero conviction right now as short-term traders just wait to see which direction we go -- headed to test that 1040 level on the S&P 500 or higher to the top end of the most recent range, about 1118.
The economic data was not a help really. Personal income and spending was offsetting as incomes came in a bit below expectations, while spending a bit higher. Overall, I thought the report was a good one, as the gain in income outpace spending; it would be nice to see this play out for a while, but as we elude to below this is probably not the type of stuff traders would like to see – spend baby, spend.
Energy and basic material stocks were the worst hit groups yesterday, It was a divided session as five of the top 10 industry groups fell with five gaining ground. Consumer staple and telecom shares were the out-performers.
Treasury securities continued to rally, making it four of the past five sessions, as the yield on the 10-year fell to 3.02% -- again – and the two-year looks headed below 0.60% -- a record low yield, even below the 2008 and 2009 lows. And the rally continues today as the 10-year yield is down another five bps to 2.97% and the two-year just barely above that 0.60% mark at 0.617%...continued after the jump.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Tuesday, June 29, 2010
Monday, June 28, 2010
Daily Insight: Weaker by the Revision
U.S. stocks endured another up and down session but the broad market held on to a late-session bump to close higher for the first session of the week – it was the one of the worst weeks of the year with the Dow down 2.94%, the S&P 500 off by 3.65%, the NASDAQ down 3.74%, the S&P 400 (mid cap) sliding 3.75% and the Russell 2000 (small cap) slipping 3.27%.
Financials led the S&P 500 marginally higher as traders viewed banks had dodged a bullet due to watered down limits on derivatives trading and investing in hedge funds – although banks were going to find a way around this anyway, but likely at a higher cost. (Sorry to say, I don’t think banks will dodge the double-dip housing market bullet.) And with the death of Senator Byrd last night and Senator Brown now expressing doubt he’ll vote yes, FinReg may ultimately come up short of the needed 60 votes in the Senate.
Consumer staples led the four major industry groups that closed lower. The other traditional areas of safety – health-care and utilities – did gain ground for the session.
Did the overall market truly rally on the news Friday morning that FinReg was watered down? I’m not sure as this is a strange market environment; you never know if it’s some algorithmic dollar-down computer order buying (that is, programmed to bid prices higher on dollar weakness – waning of the safety trade), as some suggested and is supported by the chart below. And even though FinReg doesn’t appear to be a worst-case scenario for the economy’s credit outlets, House and Senate Chambers rushed agreement via a Thursday all-nighter, which doesn’t exactly give one the sense that a whole lot of consideration was given – the law of unintended consequences will likely be rife with this legislation, if it ultimately passes.
Click here for full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Financials led the S&P 500 marginally higher as traders viewed banks had dodged a bullet due to watered down limits on derivatives trading and investing in hedge funds – although banks were going to find a way around this anyway, but likely at a higher cost. (Sorry to say, I don’t think banks will dodge the double-dip housing market bullet.) And with the death of Senator Byrd last night and Senator Brown now expressing doubt he’ll vote yes, FinReg may ultimately come up short of the needed 60 votes in the Senate.
Consumer staples led the four major industry groups that closed lower. The other traditional areas of safety – health-care and utilities – did gain ground for the session.
Did the overall market truly rally on the news Friday morning that FinReg was watered down? I’m not sure as this is a strange market environment; you never know if it’s some algorithmic dollar-down computer order buying (that is, programmed to bid prices higher on dollar weakness – waning of the safety trade), as some suggested and is supported by the chart below. And even though FinReg doesn’t appear to be a worst-case scenario for the economy’s credit outlets, House and Senate Chambers rushed agreement via a Thursday all-nighter, which doesn’t exactly give one the sense that a whole lot of consideration was given – the law of unintended consequences will likely be rife with this legislation, if it ultimately passes.
Click here for full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Wednesday, June 9, 2010
Daily Insight: NFIB and What's a Keynesian Central Banker to Do?
U.S. stocks bounced between gain and loss on several occasions yet again yesterday, but eventually rallied to end a two-day slide that had sent the S&P 500 to a seven-month low.
Comments from Fed Chairman Bernanke reportedly put the brakes on an early-morning rally with his comments on the labor market. The Fed head stated that the unemployment rate is likely to remain “high for a while.” But you can’t keep a good market down, most stocks pulled a reverse of what’s played out over the past couple of sessions and rallied late in the day to close at the session high.
In Monday’s letter, following Friday’s loss that brought the S&P 500 back down to the 1060 handle, we mentioned that it wouldn’t be long before a retest of 1040 occurs – that is the intraday low hit on May 25 and the lowest closing level since last November. We came close to that mark yesterday morning, hitting 1042, and rallied from there; although not in a straight line.
Basic material shares enjoyed a really nice day, jumping 2.49%. These shares, which were among the top-performers when the market was in rally mode, had been hit hard, falling 18% since April 26. Technology shares were the laggards, but all 10 major industry groups did rise for the session.
I did notice commentary suggesting that the market rebounded on speculation the Swiss National Bank (SNB) has intervened to support the euro. Speculation? They have been intervening for a while, as we’ve been discussing. The Swiss Franc has plunged 9.5% over the past six weeks due to the SNB selling the heck out of it to support the euro – yeah, euro would probably be down to that 1.15 USD/EUR level (the all out intervention level) without the SNB’s actions.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
http://www.acrinv.com/
Comments from Fed Chairman Bernanke reportedly put the brakes on an early-morning rally with his comments on the labor market. The Fed head stated that the unemployment rate is likely to remain “high for a while.” But you can’t keep a good market down, most stocks pulled a reverse of what’s played out over the past couple of sessions and rallied late in the day to close at the session high.
In Monday’s letter, following Friday’s loss that brought the S&P 500 back down to the 1060 handle, we mentioned that it wouldn’t be long before a retest of 1040 occurs – that is the intraday low hit on May 25 and the lowest closing level since last November. We came close to that mark yesterday morning, hitting 1042, and rallied from there; although not in a straight line.
Basic material shares enjoyed a really nice day, jumping 2.49%. These shares, which were among the top-performers when the market was in rally mode, had been hit hard, falling 18% since April 26. Technology shares were the laggards, but all 10 major industry groups did rise for the session.
I did notice commentary suggesting that the market rebounded on speculation the Swiss National Bank (SNB) has intervened to support the euro. Speculation? They have been intervening for a while, as we’ve been discussing. The Swiss Franc has plunged 9.5% over the past six weeks due to the SNB selling the heck out of it to support the euro – yeah, euro would probably be down to that 1.15 USD/EUR level (the all out intervention level) without the SNB’s actions.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
http://www.acrinv.com/
Tuesday, June 8, 2010
Daily Insight: It's Different and Consumer Credit
U.S. stocks slipped again on Monday, beginning the week much like we did last Tuesday (last Monday being a holiday) as the major indices gained ground at the open before sliding late in the session.
Industrial and financial shares led the broad market lower, again. Industrials are feeling the pressure that weaker Chinese growth and European government debt issues will have on the global economy. Financials took it on the chin after Goldman Sachs was subpoenaed by the Financial Crisis Inquiry Commission for failing to comply with information requests in a “timely manner.”
The S&P 500 index that tracks utility shares was the only major industry group to gain ground. Health-care and telecoms performed well on a relative basis, but did decline slightly.
Stocks closed at session lows for the second-straight session as the latest report on consumer credit, which we touch on below, reminded of household balance sheet problems. Overall consumer credit has declined 6.6% since December 2008 and is down 4.6% at an annual rate since GDP turned positive again in the third quarter of 2009. It is unusual for consumer debt to decline, much less during the initial stages of expansion, but then household debt levels are more elevated than at any time in the postwar era.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
http://www.acrinv.com/
Industrial and financial shares led the broad market lower, again. Industrials are feeling the pressure that weaker Chinese growth and European government debt issues will have on the global economy. Financials took it on the chin after Goldman Sachs was subpoenaed by the Financial Crisis Inquiry Commission for failing to comply with information requests in a “timely manner.”
The S&P 500 index that tracks utility shares was the only major industry group to gain ground. Health-care and telecoms performed well on a relative basis, but did decline slightly.
Stocks closed at session lows for the second-straight session as the latest report on consumer credit, which we touch on below, reminded of household balance sheet problems. Overall consumer credit has declined 6.6% since December 2008 and is down 4.6% at an annual rate since GDP turned positive again in the third quarter of 2009. It is unusual for consumer debt to decline, much less during the initial stages of expansion, but then household debt levels are more elevated than at any time in the postwar era.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
http://www.acrinv.com/
Thursday, May 27, 2010
Daily Insight: Apps, Durable Goods, New Homes and Shoot to Kill
After spending most of the day on the plus side U.S. stocks failed to hold positive territory, falling below the cut line in the final 40 minutes of trading. You can’t say it was a mirror image of Tuesday’s session, when stocks erased a 3% plunge to close mildly positive, but it was close. At its intraday peak, the S&P 500 was higher by 1.54%, but momentum began to fade at about 1:00 CDT and completely fell apart as we headed for the close.
There was a report from the Financial Times, out about the time that stocks went negative, stating that China may begin reducing their positions in European government bonds. Obviously, and it shows just how skittish this market is for it to react this way, the Chinese are not going to announce such a strategy to the world; they hold $630 billion in euro-zone bonds, they’re not going to want to see those positions summarily crushed. But from a wider perspective, such action would put immense pressure on the European banking system since they have significant exposure to these bonds. Actually, the exposure is more likely massive, but I don’t have the number in front of me so I’ll call it significant for now.
The EU banking system is in trouble anyway you look at it. The central bank and various euro-zone governments can delay the damage, but they can’t ultimately erase what only good policy and time can cure.
The day’s economic reports were mixed with the April durable goods report beating expectations on the headline number, but missed via the more reliable ex-transportation reading. New home sales for April jumped, destroying the consensus estimate, but as the prior three weeks of mortgage apps have shown, the tax credit simply stole sales from the future…more on these data below.
Nine of the 10 major industry groups closed down for the session, industrials being the only survivor – the S&P 500 index that tracks these shares was up as much as 2.5%, but ended just 0.25% higher . Telecom and tech led to the downside, both were also positive earlier in the session.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
There was a report from the Financial Times, out about the time that stocks went negative, stating that China may begin reducing their positions in European government bonds. Obviously, and it shows just how skittish this market is for it to react this way, the Chinese are not going to announce such a strategy to the world; they hold $630 billion in euro-zone bonds, they’re not going to want to see those positions summarily crushed. But from a wider perspective, such action would put immense pressure on the European banking system since they have significant exposure to these bonds. Actually, the exposure is more likely massive, but I don’t have the number in front of me so I’ll call it significant for now.
The EU banking system is in trouble anyway you look at it. The central bank and various euro-zone governments can delay the damage, but they can’t ultimately erase what only good policy and time can cure.
The day’s economic reports were mixed with the April durable goods report beating expectations on the headline number, but missed via the more reliable ex-transportation reading. New home sales for April jumped, destroying the consensus estimate, but as the prior three weeks of mortgage apps have shown, the tax credit simply stole sales from the future…more on these data below.
Nine of the 10 major industry groups closed down for the session, industrials being the only survivor – the S&P 500 index that tracks these shares was up as much as 2.5%, but ended just 0.25% higher . Telecom and tech led to the downside, both were also positive earlier in the session.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Wednesday, May 26, 2010
Market Minute: Putting The Correction Into Perspective
We officially had a market correction, which is defined as a 10% decline from a market’s peak, but a period of market consolidation was inevitable after the straight-up rally from the March 2009 nadir.
As the market climbed higher, shares moved from being slightly cheap (using a cyclically-adjusted P/E ratio) to expensive. Meanwhile spreads on high-yield bonds (the extra yield investors demand to hold company debt rather than government securities) fell from more than 16 percentage points at the start of 2009 to less than six points.
So we were due for a correction, but that is no reason for investors to fall into the fetal position. Corrections are pretty normal. According to David Rosenberg of Gluskin Sheff, corrections historically have occurred about every 12 months and tend to occur more in the second year of a rebound than in year one.
Market contractions like the last 30 days feel severe, but it must be viewed in the context of an 80% surge from the March lows. It would have been surprising if the markets had not paused to catch its breath. I laid out a plethora of market risks in my April 22 blog post and made it abundantly clear that this recovery will be bumpy and market pullbacks should not come as a surprise.
Before markets turn bullish again, we need to see LIBOR (London Interbank Offered Rate) spreads begin to narrow. LIBOR is the interest rate one bank charges another for a loan and serves as the benchmark for $360 trillion of financial products worldwide, ranging from mortgages to small business loans to credit cards. This key benchmark of interbank lending continues to rise, suggesting that there is rising caution even among banks about lending to each other. Banks’ reluctance to lend to each other stems from concerns about (1) the deteriorating quality of each other’s collateral as a result of the Eurozone’s financial problems, and (2) the U.S. financial reform bill that could adversely affect the credit ratings and profitability of major U.S. banks.
Of course, LIBOR is nowhere near the levels reached at the worst of the financial crisis back in October of 2008 – 3-month LIBOR is currently 0.537% compared to 4.81% in October 2008. Still, I’d expect investors want to see LIBOR come down before they start plowing money back into riskier assets.
Peter Lazaroff, Investment Analyst
http://www.acrinv.com/
As the market climbed higher, shares moved from being slightly cheap (using a cyclically-adjusted P/E ratio) to expensive. Meanwhile spreads on high-yield bonds (the extra yield investors demand to hold company debt rather than government securities) fell from more than 16 percentage points at the start of 2009 to less than six points.
So we were due for a correction, but that is no reason for investors to fall into the fetal position. Corrections are pretty normal. According to David Rosenberg of Gluskin Sheff, corrections historically have occurred about every 12 months and tend to occur more in the second year of a rebound than in year one.
Market contractions like the last 30 days feel severe, but it must be viewed in the context of an 80% surge from the March lows. It would have been surprising if the markets had not paused to catch its breath. I laid out a plethora of market risks in my April 22 blog post and made it abundantly clear that this recovery will be bumpy and market pullbacks should not come as a surprise.
Before markets turn bullish again, we need to see LIBOR (London Interbank Offered Rate) spreads begin to narrow. LIBOR is the interest rate one bank charges another for a loan and serves as the benchmark for $360 trillion of financial products worldwide, ranging from mortgages to small business loans to credit cards. This key benchmark of interbank lending continues to rise, suggesting that there is rising caution even among banks about lending to each other. Banks’ reluctance to lend to each other stems from concerns about (1) the deteriorating quality of each other’s collateral as a result of the Eurozone’s financial problems, and (2) the U.S. financial reform bill that could adversely affect the credit ratings and profitability of major U.S. banks.
Of course, LIBOR is nowhere near the levels reached at the worst of the financial crisis back in October of 2008 – 3-month LIBOR is currently 0.537% compared to 4.81% in October 2008. Still, I’d expect investors want to see LIBOR come down before they start plowing money back into riskier assets.
Peter Lazaroff, Investment Analyst
http://www.acrinv.com/
Daily Insight: CaseShiller, Consumer Confidence, and What Rout?
U.S. stocks began the session deeply lower, following another ugly session in overseas trading – European and Asian bourses down 2.0%-3.0% -- as a couple of risks jumped out to drive the safety trade. But as the day progressed U.S. stock traders got the nerve to look the debt and geopolitical risks in the eye to say: You’re not so scary. Now, whether that confidence is due to naiveté or just a willingness to look past what is right in front of our faces right now doesn’t matter, the reversal was extraordinary.
Here’s a quick commentary on some of the news stories that appeared to move the market during the very volatile session – a 3% decline at the open for the S&P 500 that was completely erased by the close.
Stocks bounced from an opening plunge, fueled at least partially by the latest reading on consumer confidence (there are a few different measures but yesterday’s look from the Conference Board is the most-watched), but then dipped back below what technicians are calling the key 1050 level on the S&P 500.
The market then staged another move higher after Federal Reserve Bank of St. Louis President Bullard gave a speech stating that the European debt crisis probably won’t lead the world back into recession, but then fizzled again to remain 2.0% below the opening price.
The third time proved the charm, a rally that made it to the close, helped by news that House Financial Services Committee Chairman Frank believes the Senate’s FinReg language on swaps-trading operations “goes too far.” This boosted the view that one of the most harmful aspects of FinReg, with regard to future credit availability, would be struck from the bill.
Basic material, consumer discretionary, financial and telecom shares closed higher for the session. It was a 5% intraday swing for basic material shares, ending higher by 1.6% after an opening 3.3% slide – even as underlying commodity prices were down yesterday; figure that one out. Consumer staples led the six of the major 10 industry groups that closed down on the session.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Here’s a quick commentary on some of the news stories that appeared to move the market during the very volatile session – a 3% decline at the open for the S&P 500 that was completely erased by the close.
Stocks bounced from an opening plunge, fueled at least partially by the latest reading on consumer confidence (there are a few different measures but yesterday’s look from the Conference Board is the most-watched), but then dipped back below what technicians are calling the key 1050 level on the S&P 500.
The market then staged another move higher after Federal Reserve Bank of St. Louis President Bullard gave a speech stating that the European debt crisis probably won’t lead the world back into recession, but then fizzled again to remain 2.0% below the opening price.
The third time proved the charm, a rally that made it to the close, helped by news that House Financial Services Committee Chairman Frank believes the Senate’s FinReg language on swaps-trading operations “goes too far.” This boosted the view that one of the most harmful aspects of FinReg, with regard to future credit availability, would be struck from the bill.
Basic material, consumer discretionary, financial and telecom shares closed higher for the session. It was a 5% intraday swing for basic material shares, ending higher by 1.6% after an opening 3.3% slide – even as underlying commodity prices were down yesterday; figure that one out. Consumer staples led the six of the major 10 industry groups that closed down on the session.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Tuesday, May 25, 2010
Daily Insight: Existing Home Sales and More European sPain
U.S. stocks bounced around the cut line for most of Monday’s session in a show of either remarkable or unbelievable resilience -- considering the developments out of Spain over the weekend could be seen as a harbinger of European banking problems soon to come and mounting tensions in Korea. But the major indices did succumb to weakness late in the day, erasing almost all of Friday’s gain in the final 90 minutes of trading.
Financials, energy and basic material shares led the market lower. Health-care and tech were the best performing groups, but even these were down as all 10 major industry groups declined on Monday. Tech actually spent most of the session in positive territory, up as much as 0.85% even as the broad market struggled to peek above the cut line, but sold off by 1.38% in the afternoon.
Four Spanish savings banks are set to merge in a coordinated effort by the Bank of Spain in an attempt to strengthen their solvency. The four banks hold more than $168 billion in assets, which is kind of a big deal for a $1.6 trillion economy. These banks went on a lending binge during the Southern European real-estate boom and as Spanish unemployment has leapt to 20% from 8% in less than two years the banking troubles are clearly widespread.
On the Korean peninsula, the South has begun to respond, although tepidly, to the March 26 sinking of their warship. The North has reportedly ordered their military to ready for combat. One can hardly take anything news that comes out of the North at face value, but conditions are ripe for trouble.
We’ve mentioned a couple of times now that risk lurks around many corners, just waiting to jump out and scare the complacency out of everyone. A couple of these risks have begun to do so.
Click here to read the full Daily Insight
Brent Vondera, Senior Analyst
www.acrinv.com
Financials, energy and basic material shares led the market lower. Health-care and tech were the best performing groups, but even these were down as all 10 major industry groups declined on Monday. Tech actually spent most of the session in positive territory, up as much as 0.85% even as the broad market struggled to peek above the cut line, but sold off by 1.38% in the afternoon.
Four Spanish savings banks are set to merge in a coordinated effort by the Bank of Spain in an attempt to strengthen their solvency. The four banks hold more than $168 billion in assets, which is kind of a big deal for a $1.6 trillion economy. These banks went on a lending binge during the Southern European real-estate boom and as Spanish unemployment has leapt to 20% from 8% in less than two years the banking troubles are clearly widespread.
On the Korean peninsula, the South has begun to respond, although tepidly, to the March 26 sinking of their warship. The North has reportedly ordered their military to ready for combat. One can hardly take anything news that comes out of the North at face value, but conditions are ripe for trouble.
We’ve mentioned a couple of times now that risk lurks around many corners, just waiting to jump out and scare the complacency out of everyone. A couple of these risks have begun to do so.
Click here to read the full Daily Insight
Brent Vondera, Senior Analyst
www.acrinv.com
Friday, May 21, 2010
Daily Insight: Jobless Claims, Philly Fed and For All the Wrong Reasons
As everyone knows, U.S. stocks got hit hard yesterday, extending the latest losing streak to three sessions but the weakness has really been in play for three weeks, hitting a crescendo since the so-called “flash crash” two weeks back. Yesterday’s open to close decline was actually larger than the May 6 (flash-crash day) move.
Stocks looked ready to stage a comeback on a couple of occasions yesterday, a rally late in the morning session and then again about mid-way into afternoon trading. But a late-session slide, which coincided with news that the Senate came up with the 60 votes necessary to end cloture and clear the way for passage of financial regulation legislation -- which they ultimately passed last night, slammed the market back down to close at the intraday low. The Senate version will have to be reconciled with a House plan passed in December. After that it gets signed.
To no surprise, financials led the market slide. Industrials, energy and basic materials (all the most cyclical industries that are having trouble now that the state of the global economy are in doubt again) weren’t far behind. Telecom, consumer staples and utility shares were the relative winners, but even these were off by roughly 3%.
The broad market – as measured by the S&P 500 -- is now off its recent high by 12%, a decline of more than 10% is considered a correction, as markets follow the Shanghai Composite lower. The Shanghai exchange is down 18% since April 15 and 25% off its near-term peak. The trend of Shanghai leading has been in place since late 2008. I’m not saying this trend is in place for the long term, but it’s tough to ignore for now. As China continues to rein in its stimulus, which has provided a kick to the entire Asian region, commodity-rich economies and technology & certain industrial firms, the market may continue to pull back from the risk trade. Of course, concerns over Europe and the drag those economies will have on global growth are also part of the problem. But Shanghai has been quite the indicator.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Stocks looked ready to stage a comeback on a couple of occasions yesterday, a rally late in the morning session and then again about mid-way into afternoon trading. But a late-session slide, which coincided with news that the Senate came up with the 60 votes necessary to end cloture and clear the way for passage of financial regulation legislation -- which they ultimately passed last night, slammed the market back down to close at the intraday low. The Senate version will have to be reconciled with a House plan passed in December. After that it gets signed.
To no surprise, financials led the market slide. Industrials, energy and basic materials (all the most cyclical industries that are having trouble now that the state of the global economy are in doubt again) weren’t far behind. Telecom, consumer staples and utility shares were the relative winners, but even these were off by roughly 3%.
The broad market – as measured by the S&P 500 -- is now off its recent high by 12%, a decline of more than 10% is considered a correction, as markets follow the Shanghai Composite lower. The Shanghai exchange is down 18% since April 15 and 25% off its near-term peak. The trend of Shanghai leading has been in place since late 2008. I’m not saying this trend is in place for the long term, but it’s tough to ignore for now. As China continues to rein in its stimulus, which has provided a kick to the entire Asian region, commodity-rich economies and technology & certain industrial firms, the market may continue to pull back from the risk trade. Of course, concerns over Europe and the drag those economies will have on global growth are also part of the problem. But Shanghai has been quite the indicator.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Wednesday, May 19, 2010
Market Minute: Tips For Market Volatility
The fact that market volatility has been elevated recently is no secret. Volatility can have a harmful effect on investor behavior. One of the most common mistakes is attempting to time the market, as investors generally react too late to be able to capitalize on gains or avoid major losses (not to mention the significant costs that come with market timing).
It’s no surprise that this behavior is more prevalent in volatile markets since it is our human nature to seek safety in times of trouble. The problem with selling in fear is that you also have to determine the appropriate time to re-enter the market. Unfortunately, most people that wait until “the coast is clear” miss out on the gains and end up buying at high prices. I don’t have to tell you that selling low and buying high is harmful.
Today I would like to present you with a few tips that you may find useful in volatile times. Follow these tips and you will never fall victim to market timing.
Stay the course. Maintaining your target asset mix of stocks, bonds, and cash is the most important part of a long-term investment plan. In fact, 90% of variation in portfolio performance can be attributed to your asset allocation. There is no one-size-fits-all allocation since everyone’s asset mix depends on individual objectives, time horizon, risk tolerance, and current financial situation. Once you (with the help of your financial advisor) determine the appropriate asset allocation for your circumstances, stick to it.
Continue automatic investment contributions. Making regular contributions to your 401(k), IRA, or taxable investment accounts is one of the best and most disciplined ways to grow your wealth. For most people, this means having a predetermined sum transferred directly from their paycheck into an investment account. Others will have automatic transfers from a checking or savings account. Regular contributions result in better average purchase prices – you buy more shares when prices are low and fewer shares when prices are high – and take emotions out of investment decisions.
Tune out the noise. These days there is an amazing amount of news outlets vying for your attention. Newspapers, magazines, and news reporters all try to identify the causes of every market gyration and predict the next move, but it’s impossible to explain market activities until long after the dust has settled. Try to ignore all this noise and keep focused on your long-term goals. As a close friend of mine so perfectly said to me, “I’m going to let you worry about all the nonsense.” Good idea.
Volatility is the norm, with market fluctuations cancelling each other out over the long term. There is never any guarantee in the financial markets, but staying on course over the long run increases the chances of meeting your financial goals.
Peter Lazaroff, Investment Analyst
Daily Insight: Regulatory Regime, Housing Starts and Give Me Yield Baby!
U.S. stocks began the session higher on Tuesday, but prices deteriorated as we headed into the afternoon session. Chances of recovery within the eurozone are falling, which caused traders to run for a little more cover. German Chancellor Merkel sated that she would support a tax on the financial sector to help fund the costs of the sovereign-debt rescue plan.
Combining with this ongoing worry was a surprise ban on naked short-selling and credit-default swaps by German regulators. I’m certainly not going to defend naked positions, but this sudden unilateral decision had on affect on U.S. trading as people believed it would shake up European markets when they opened last night – and indeed they were shaken, down 2.5%-3.0% across the board. Politicians can maintain their attempt to control the markets from responding to terrible policy decisions, but if they take away just one in a number of ways to short policy then traders will just shift their assault to the currency – and the euro surely doesn’t need additional attack.
Further complicating things was an amendment out of the U.S. Senate that would allow states to enforce their own credit-card rate limits regardless of where the issuer is located. Banks currently get around various state usury laws by domiciling in states with the least regulations – imagine that. Differing state laws is about as messy as legislation can get, leading to confusion within the industry. This is on top of the debit-card “swipe” fees – the fees charged to merchants on each transaction, which continues to whack shares of Visa and MasterCard. Financial regulation is really starting roll.
To no surprise, financial shares led the market lower. Consumer discretionary shares also got hit hard, along with tech. Consumer staples and telecoms were the relative winners for a third session. All 10 major groups did decline during the session.
In other regulatory news, U.S. stock exchanges and regulators proposed a six-month pilot program to help guard against events like the “flash crash” that occurred on May 6. Circuit breakers will be put in place on individual stocks (trading paused if a stock price moves 10% or more in a five-minute period). Broader circuit breakers will be rolled out at a later date that will force a pause in market-wide trading. These new circuit breakers are aimed at electronic exchanges. The New York Stock Exchange has had circuit breakers in place for many years, as laid out below the jump.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Combining with this ongoing worry was a surprise ban on naked short-selling and credit-default swaps by German regulators. I’m certainly not going to defend naked positions, but this sudden unilateral decision had on affect on U.S. trading as people believed it would shake up European markets when they opened last night – and indeed they were shaken, down 2.5%-3.0% across the board. Politicians can maintain their attempt to control the markets from responding to terrible policy decisions, but if they take away just one in a number of ways to short policy then traders will just shift their assault to the currency – and the euro surely doesn’t need additional attack.
Further complicating things was an amendment out of the U.S. Senate that would allow states to enforce their own credit-card rate limits regardless of where the issuer is located. Banks currently get around various state usury laws by domiciling in states with the least regulations – imagine that. Differing state laws is about as messy as legislation can get, leading to confusion within the industry. This is on top of the debit-card “swipe” fees – the fees charged to merchants on each transaction, which continues to whack shares of Visa and MasterCard. Financial regulation is really starting roll.
To no surprise, financial shares led the market lower. Consumer discretionary shares also got hit hard, along with tech. Consumer staples and telecoms were the relative winners for a third session. All 10 major groups did decline during the session.
In other regulatory news, U.S. stock exchanges and regulators proposed a six-month pilot program to help guard against events like the “flash crash” that occurred on May 6. Circuit breakers will be put in place on individual stocks (trading paused if a stock price moves 10% or more in a five-minute period). Broader circuit breakers will be rolled out at a later date that will force a pause in market-wide trading. These new circuit breakers are aimed at electronic exchanges. The New York Stock Exchange has had circuit breakers in place for many years, as laid out below the jump.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Tuesday, May 18, 2010
Daily Insight: First Look at Manufacturing and Eurozone Still Pressures
U.S. stocks remained under pressure as the 5% slide in Shanghai overnight (Sunday night) and continued concerns that the European crisis will derail the global economic recovery weighed on investor sentiment. However, the market shook off its morning-session weakness, rallying in the afternoon to erase a 1.8% decline, closing just above the cut line.
Six of the 10 major industry groups gained ground during the session. Telecom and consumer staple stocks led the led the way – so there remains a safe-haven play here (telecoms are not traditional safe-havens, but since the sector is dominated by Verizon and AT&T it is the dividend yields that has investors seeking succor in this area). Energy shares led the four declining groups. Industrials, basic material and financials rounded out the losing sectors.
We’ve talked about this European debt crisis since first bringing it up in the December 9, 2009 letter and really got into it with the February 10 issue when we stated: It was always a fantasy that the EU would escape bailing out Greece, and unless things go very well they’ll be bailing other countries too as the Greek situation is the canary in the coal mine. But we’ve also said that EU trouble has implications beyond that continent as the eurozone is the world’s second-largest importer (a plunging euro will make life more difficult on the globe’s main exporting economies – specifically Asia) and the entire situation puts the hurt on European banks. It appears the market is beginning to think about these implications and unfortunately is likely to keep pressure on riskier assets.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Six of the 10 major industry groups gained ground during the session. Telecom and consumer staple stocks led the led the way – so there remains a safe-haven play here (telecoms are not traditional safe-havens, but since the sector is dominated by Verizon and AT&T it is the dividend yields that has investors seeking succor in this area). Energy shares led the four declining groups. Industrials, basic material and financials rounded out the losing sectors.
We’ve talked about this European debt crisis since first bringing it up in the December 9, 2009 letter and really got into it with the February 10 issue when we stated: It was always a fantasy that the EU would escape bailing out Greece, and unless things go very well they’ll be bailing other countries too as the Greek situation is the canary in the coal mine. But we’ve also said that EU trouble has implications beyond that continent as the eurozone is the world’s second-largest importer (a plunging euro will make life more difficult on the globe’s main exporting economies – specifically Asia) and the entire situation puts the hurt on European banks. It appears the market is beginning to think about these implications and unfortunately is likely to keep pressure on riskier assets.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Friday, May 14, 2010
Daily Insight: Jobless Claims, Import Prices, On the Dole
U.S. stocks spent most of the session bobbing around the cut line (the opening price for new readers), but slid in the final 90 minutes to make it two up and two down for the week thus far.
The fact that regulators have moved beyond Goldman Sachs and are now scrutinizing eight banks with regard to their mortgage-bond deals certainly didn’t help investor sentiment.
Also, a couple of retailers forecast weak same-store sales results for the second quarter, which led to some worries about today’s retail sale report for April.
Finally, more people seem to be talking about what we mentioned yesterday: a European economy that has become heavily dependent on government spending isn’t going to respond well to the necessary austerity plans coming from EU members.
Consumer discretionary shares led the declines (been a while since that happened as performance-chasing behavior in the sector has been running wild), with financials not far behind. Of the 10 major industry groups, only telecoms gained ground for the session.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
The fact that regulators have moved beyond Goldman Sachs and are now scrutinizing eight banks with regard to their mortgage-bond deals certainly didn’t help investor sentiment.
Also, a couple of retailers forecast weak same-store sales results for the second quarter, which led to some worries about today’s retail sale report for April.
Finally, more people seem to be talking about what we mentioned yesterday: a European economy that has become heavily dependent on government spending isn’t going to respond well to the necessary austerity plans coming from EU members.
Consumer discretionary shares led the declines (been a while since that happened as performance-chasing behavior in the sector has been running wild), with financials not far behind. Of the 10 major industry groups, only telecoms gained ground for the session.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Thursday, May 13, 2010
Daily Insight: Mortgage Apps, Trade and The Fabulous Keynesian Experiment
U.S. stocks rallied on Wednesday to have now fully recouped the big losses from late last week – the ubiquitously called flash crash. Another 1.2% pick-up and all of last week’s decline is gained back. More government back-stopping (this time from the EU), a few click of the heels, and voila the worries from just seven days back go poof. Man that was easy.
Stocks picked up momentum after a Portuguese bond sale went well, Spain announced a measure to cut their deficit and the UK election results offered optimism that the new coalition government will make progress on their debt situation. More on this below.
Tech, industrials and basic material shares were the top-performing groups yesterday. Tech has really benefited from the equipment-spending snap back after businesses froze spending for most of 2009; Chinese stimulus measures have also played a major role as Asia is the growth engine, for now. Health-care and consumer staples -- the traditional areas of safety -- were the laggards, but all 10 major groups did gain ground.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Stocks picked up momentum after a Portuguese bond sale went well, Spain announced a measure to cut their deficit and the UK election results offered optimism that the new coalition government will make progress on their debt situation. More on this below.
Tech, industrials and basic material shares were the top-performing groups yesterday. Tech has really benefited from the equipment-spending snap back after businesses froze spending for most of 2009; Chinese stimulus measures have also played a major role as Asia is the growth engine, for now. Health-care and consumer staples -- the traditional areas of safety -- were the laggards, but all 10 major groups did gain ground.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Wednesday, May 12, 2010
Reflecting On The Market Sell-Off
I was out of the office on the two trading days that followed last week’s “flash crash,” which allowed me some time to reflect on the events of that day.
In case you haven’t heard, market indexes dropped precipitously in a matter of minutes last Thursday on basically no fresh news (unless you count the reports that a new Pampers diaper made by Procter & Gamble is causing rashes).
The first conclusion I’ve come to is that last Thursday’s market action clearly demonstrates the inherent risks of our increasingly automated stock market.
High-frequency traders account for 50% to 70% of daily trading volume and, thus, these computerized trading systems provide gobs of liquidity in a normal market. But when the high-frequency crowd jumped ship last Thursday, they took their liquidity with them. I don’t think this right or wrong, fair or unfair. However, I will remember this event the next time I hear someone argue that the “constant” liquidity these computerized trading systems provide justifies their grab-every-fractional-cent-in-sight nature.
Another conclusion I have reached in the aftermath of the “flash crash” is that while human error and computer glitches are accused of being the primary culprits for the epic freefall, I think in some sense the market had been craving a sell-off.
In my April 22 post I suggested that the market would take a breather once earnings season slowed down. There is nothing wrong with sentiment growing bullish, but it’s a problem when markets are willing to shrug off just about any bad news. The bright side of a sharp market reversal like last week’s is that the jubilation dissipates and investors more soberly assess the potential risks at hand.
I’ve said this before and I’ll say it again: stocks rarely go up in a straight line. The S&P 500 has seen five pullbacks of at least 5% since March 2009, none of which ultimately prevented the market from continuing upward. This latest 8.7% drop from the April 23 peak may prove no different than the others.
The final topic I’ve reflected upon is Greece. Before the big plunge, the S&P 500 was already down on concerns about Greek debt problems and the stability of the Euro zone.
I’ve avoided talking about Greece in past weeks simply because I was never that concerned about the situation to begin with. Greece’s economy is just 2.3% the size of the U.S. economy. A default on Greece’s debt would not be big enough to derail the global economy or topple any major financial institutions in the U.S. That said, if a Greek default causes a major bank in, say, Germany to fail then all bets are off.
Still, even if Euro zone economies stagnate for years, the global economy is not highly reliant on them. Only 13.6% of U.S. exports go to Euro zone countries and only 12.7% of our imports come from the Euro zone. Europe’s economy is also of little threat to Asian economies, which are leading the world’s economic recovery. This is not to say that there wouldn’t be any global economic consequences of a Greek default, but I don’t think pain and terror would spread across the globe the way it did following the Lehman Brothers bankruptcy in 2008.
That’s all for this week. Thanks for reading and keep those comments and questions coming!
Peter Lazaroff, Investment Analyst
www.acrinv.com
In case you haven’t heard, market indexes dropped precipitously in a matter of minutes last Thursday on basically no fresh news (unless you count the reports that a new Pampers diaper made by Procter & Gamble is causing rashes).
The first conclusion I’ve come to is that last Thursday’s market action clearly demonstrates the inherent risks of our increasingly automated stock market.
High-frequency traders account for 50% to 70% of daily trading volume and, thus, these computerized trading systems provide gobs of liquidity in a normal market. But when the high-frequency crowd jumped ship last Thursday, they took their liquidity with them. I don’t think this right or wrong, fair or unfair. However, I will remember this event the next time I hear someone argue that the “constant” liquidity these computerized trading systems provide justifies their grab-every-fractional-cent-in-sight nature.
Another conclusion I have reached in the aftermath of the “flash crash” is that while human error and computer glitches are accused of being the primary culprits for the epic freefall, I think in some sense the market had been craving a sell-off.
In my April 22 post I suggested that the market would take a breather once earnings season slowed down. There is nothing wrong with sentiment growing bullish, but it’s a problem when markets are willing to shrug off just about any bad news. The bright side of a sharp market reversal like last week’s is that the jubilation dissipates and investors more soberly assess the potential risks at hand.
I’ve said this before and I’ll say it again: stocks rarely go up in a straight line. The S&P 500 has seen five pullbacks of at least 5% since March 2009, none of which ultimately prevented the market from continuing upward. This latest 8.7% drop from the April 23 peak may prove no different than the others.
The final topic I’ve reflected upon is Greece. Before the big plunge, the S&P 500 was already down on concerns about Greek debt problems and the stability of the Euro zone.
I’ve avoided talking about Greece in past weeks simply because I was never that concerned about the situation to begin with. Greece’s economy is just 2.3% the size of the U.S. economy. A default on Greece’s debt would not be big enough to derail the global economy or topple any major financial institutions in the U.S. That said, if a Greek default causes a major bank in, say, Germany to fail then all bets are off.
Still, even if Euro zone economies stagnate for years, the global economy is not highly reliant on them. Only 13.6% of U.S. exports go to Euro zone countries and only 12.7% of our imports come from the Euro zone. Europe’s economy is also of little threat to Asian economies, which are leading the world’s economic recovery. This is not to say that there wouldn’t be any global economic consequences of a Greek default, but I don’t think pain and terror would spread across the globe the way it did following the Lehman Brothers bankruptcy in 2008.
That’s all for this week. Thanks for reading and keep those comments and questions coming!
Peter Lazaroff, Investment Analyst
www.acrinv.com
Daily Insight: Small Business Optimism, Consumer Confidence and The Killer Crossover
U.S. stocks were unable to build upon Monday’s powerful snap-back as concerns that the Chinese will further tighten lending requirements weighed on the basic materials and energy sectors and doubts began to surface over the effectiveness of Europe’s bailout plan.
Commodity-related (basic materials and energy) have been a play on both massive monetary easing and Chinese stimulus, and now that one seems to be going by the wayside these sectors were yesterday’s worst-performers. Of the 10 major sectors, utility and consumer discretionary shares were the only groups up on the day.
The $38 billion 3-yr auction went very well as buyers stormed in. The bid-to-cover (measure of demand) came in at a near-record of 3.27, and all for 1.41%.
The Chinese stock market is worth watching as it has been a leading indicator for the direction of the S&P 500 over the past two years (only exception being a six-week period last summer). That market is now officially in bear market territory again as the Shanghai Exchange is down 20% from its most recent peak.
So the Shanghai has had two cyclical bull markets (in a secular bear) over the past 18 months – the rallies incited by the government’s very aggressive stimulus package, and the reversals on the talk of and now actual reining in of that policy. The Shanghai had plunged 72% from October 2007 peak to the November 2008 trough. Currently, the index remains 56% below its record high. We’re watching the folly of the most aggressive Keynesian experiment in history and insaniac monetary policy.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Commodity-related (basic materials and energy) have been a play on both massive monetary easing and Chinese stimulus, and now that one seems to be going by the wayside these sectors were yesterday’s worst-performers. Of the 10 major sectors, utility and consumer discretionary shares were the only groups up on the day.
The $38 billion 3-yr auction went very well as buyers stormed in. The bid-to-cover (measure of demand) came in at a near-record of 3.27, and all for 1.41%.
The Chinese stock market is worth watching as it has been a leading indicator for the direction of the S&P 500 over the past two years (only exception being a six-week period last summer). That market is now officially in bear market territory again as the Shanghai Exchange is down 20% from its most recent peak.
So the Shanghai has had two cyclical bull markets (in a secular bear) over the past 18 months – the rallies incited by the government’s very aggressive stimulus package, and the reversals on the talk of and now actual reining in of that policy. The Shanghai had plunged 72% from October 2007 peak to the November 2008 trough. Currently, the index remains 56% below its record high. We’re watching the folly of the most aggressive Keynesian experiment in history and insaniac monetary policy.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Tuesday, May 11, 2010
Daily Insight: Europe's Poker Face, The Unlimited ATM and Today's Data
U.S. stocks recouped about 40% of the prior week’s losses as the market surged following European policymakers’ announcement they’ll go “all in” with regard to bailing out Greece and attempting to contain what sure appears to be a debt contagion.
Industrial, financial and consumer discretionary stocks definitely liked the news – all were up more than 5% for the session. Tech and basic material stocks rallied more than 4%. Energy shares were up more than 3%. Even the worst-performing group during the session, telecoms, managed a 2.4% gain.
“All in.” I heard, or read, someone refer to it this way; that’s a great analogy. We are after all talking about a game of poker here; if the market gets a sense that the EU is bluffing, they’ll go right at the throats of the weakest sovereigns. The stronger governments of German and France are definitely “all in,” the IMF is “all in,” and the ECB may or may not be “all in” – they haven’t yet expressed just how aggressive they’ll be buying up government and private debt as they try to avert what could have turned into a run on southern European banks.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Industrial, financial and consumer discretionary stocks definitely liked the news – all were up more than 5% for the session. Tech and basic material stocks rallied more than 4%. Energy shares were up more than 3%. Even the worst-performing group during the session, telecoms, managed a 2.4% gain.
“All in.” I heard, or read, someone refer to it this way; that’s a great analogy. We are after all talking about a game of poker here; if the market gets a sense that the EU is bluffing, they’ll go right at the throats of the weakest sovereigns. The stronger governments of German and France are definitely “all in,” the IMF is “all in,” and the ECB may or may not be “all in” – they haven’t yet expressed just how aggressive they’ll be buying up government and private debt as they try to avert what could have turned into a run on southern European banks.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
www.acrinv.com
Thursday, May 6, 2010
Daily Insight: Oil Slick, Mortgage Apps, Jobs Picture and Service-Sector
The headwinds of European debt concerns and the evaporation of Chinese stimulus continues to assault the markets, although the major indices held in there pretty well considering the drag the Eurozone is going to put on global growth. The run, well maybe a jog for now, for safety persists as Treasury securities recorded a second-straight session of meaningful gain.
The dollar rallied as the euro got slammed again -- pretty much shaping up as our commentary suggested would be the case via the March 24 letter entitled Can the Dollar Rally Continue? (archived on the website) – as even ECB council member Axel Weber acknowledged that Greece’s fiscal crisis is threatening “grave contagion effects.” He’s got it partially right at least, it’s just not the Greek budget but the entire entitlement-centric system is crumbling, and another EU banking crisis is not out of the question. To repeat, so-called rescue packages can ease the concern on a day-to-day, even week-to-week basis, but eventually the Eurozone will have to ultimately face reality; their system is not sustainable.
Eight of the 10 major S&P 500 industry groups decline for the session, led by energy, industrials and consumer discretionary shares. The traditional areas of safety out-performed the market for a second day – health-care and consumer staples were the only groups in the black. Naturally, with this weakness, volume has begun to pick up, hitting levels that we haven’t seen with this consistency since early in 2009.
Click here to read the full Daily Insight
Brent Vondera, Senior Analyst
Acropolis Investment Management
www.acrinv.com
The dollar rallied as the euro got slammed again -- pretty much shaping up as our commentary suggested would be the case via the March 24 letter entitled Can the Dollar Rally Continue? (archived on the website) – as even ECB council member Axel Weber acknowledged that Greece’s fiscal crisis is threatening “grave contagion effects.” He’s got it partially right at least, it’s just not the Greek budget but the entire entitlement-centric system is crumbling, and another EU banking crisis is not out of the question. To repeat, so-called rescue packages can ease the concern on a day-to-day, even week-to-week basis, but eventually the Eurozone will have to ultimately face reality; their system is not sustainable.
Eight of the 10 major S&P 500 industry groups decline for the session, led by energy, industrials and consumer discretionary shares. The traditional areas of safety out-performed the market for a second day – health-care and consumer staples were the only groups in the black. Naturally, with this weakness, volume has begun to pick up, hitting levels that we haven’t seen with this consistency since early in 2009.
Click here to read the full Daily Insight
Brent Vondera, Senior Analyst
Acropolis Investment Management
www.acrinv.com
Wednesday, May 5, 2010
Daily Insight: Driven to the Shadows, Lost in Translation and Pending Home Sales
U.S. stocks took a little bit of a beating yesterday, as the market has run into the headwinds of EU debt troubles and China’s early-stage unwind of their stimulus measures via the tightening of lending standards. The broad market has dropped 3.5% over the past seven sessions, but then again it had rallied 80% from the March 9, 2009 13-year low.
As we’ve been touching on, the Chinese are in the process of reining in their stimulus efforts for fear of further inflating the housing market. Traders on the Shanghai Exchange got their first chance to react this week (they were closed on Monday) and pushed the index down another 1.2% to a seven-month low. Also in the region, the Aussie central bank hiked their benchmark interest rate for the fifth time in six months – man, it would be nice to have short-term rates at 4.25%. But maybe a little too much too fast Aussie’s, looks like you’ve been tricked into thinking the Pacific growth story is sustainable; we’ll see as the Chinese lay off the nitrous.
The EU sovereign debt crisis also played a role in spooking traders after Germany’s economic minister added uncertainty to the situation when he stated the $140 billion EU/IMF rescue was not intended to cover Greece’s borrowing needs for the next three years, but possibly just 18 months – more on this below.
Market sentiment will continue to ebb and flow because the EU government debt problem isn’t going away. Talks, plans and even implementations of bailouts may ease investor concerns in the short term but the reality of dealing with these structural issues will be harsh and felt by the global economy.
Basic material shares led the major industry groups lower, with industrials and tech also down big. The relative winners were traditional areas of safety – health-care and consumer staples – but they also closed lower as all 10 major groups declined.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
Acropolis Investment Management
www.acrinv.com
As we’ve been touching on, the Chinese are in the process of reining in their stimulus efforts for fear of further inflating the housing market. Traders on the Shanghai Exchange got their first chance to react this week (they were closed on Monday) and pushed the index down another 1.2% to a seven-month low. Also in the region, the Aussie central bank hiked their benchmark interest rate for the fifth time in six months – man, it would be nice to have short-term rates at 4.25%. But maybe a little too much too fast Aussie’s, looks like you’ve been tricked into thinking the Pacific growth story is sustainable; we’ll see as the Chinese lay off the nitrous.
The EU sovereign debt crisis also played a role in spooking traders after Germany’s economic minister added uncertainty to the situation when he stated the $140 billion EU/IMF rescue was not intended to cover Greece’s borrowing needs for the next three years, but possibly just 18 months – more on this below.
Market sentiment will continue to ebb and flow because the EU government debt problem isn’t going away. Talks, plans and even implementations of bailouts may ease investor concerns in the short term but the reality of dealing with these structural issues will be harsh and felt by the global economy.
Basic material shares led the major industry groups lower, with industrials and tech also down big. The relative winners were traditional areas of safety – health-care and consumer staples – but they also closed lower as all 10 major groups declined.
Click here to read the full Daily Insight.
Brent Vondera, Senior Analyst
Acropolis Investment Management
www.acrinv.com
Tuesday, May 4, 2010
Daily Insight: Spend It Like You Got It and Factories Humming
U.S. stocks were able to shake off some market weakness overseas and China’s continued pull-back of stimulus measures, as they tighten lending standards, to end two-sessions of decline on Monday. The three major indices gained back most of Friday’s losses.
Certainly a bang-up manufacturing report helped to ease some concerns but the Commerce Department showed the income/spending ratio deteriorated again, which means spending is being stolen from the future. These reports pretty much offset each other, if one is thinking beyond the here and now. More on this data below the jump.
A reader expressed surprise that I didn’t touch on the attempted car bombing in Times Square in Monday’s letter, particularly since I’ve spent several years talking about the importance of geopolitical risks/domestic security with regard to economic growth. The markets found it unnecessary to put in any additional terrorist premium as futures trading was not affected in the least, so I decided not to use space on the topic. However, while we’re on it now, even though it didn’t seem like a serious explosive device, one would think it to be a large enough act to raise concern of the larger issue of terrorism, but no worries for this market…yet. When risks lurk around many corners, it’s only a matter of time before some form jumps out and scares the complacency out of everyone.
Industrials, consumer discretionary (spend it like you got it), and financials led the market higher. The S&P 500 index that tracks basic material shares was the only group down for the session.
Click here to read the rest of the Daily Insight
Brent Vondera, Senior Analyst
www.acrinv.com
Certainly a bang-up manufacturing report helped to ease some concerns but the Commerce Department showed the income/spending ratio deteriorated again, which means spending is being stolen from the future. These reports pretty much offset each other, if one is thinking beyond the here and now. More on this data below the jump.
A reader expressed surprise that I didn’t touch on the attempted car bombing in Times Square in Monday’s letter, particularly since I’ve spent several years talking about the importance of geopolitical risks/domestic security with regard to economic growth. The markets found it unnecessary to put in any additional terrorist premium as futures trading was not affected in the least, so I decided not to use space on the topic. However, while we’re on it now, even though it didn’t seem like a serious explosive device, one would think it to be a large enough act to raise concern of the larger issue of terrorism, but no worries for this market…yet. When risks lurk around many corners, it’s only a matter of time before some form jumps out and scares the complacency out of everyone.
Industrials, consumer discretionary (spend it like you got it), and financials led the market higher. The S&P 500 index that tracks basic material shares was the only group down for the session.
Click here to read the rest of the Daily Insight
Brent Vondera, Senior Analyst
www.acrinv.com
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