Daily Insight: Achtung Baby, Today's Data, CAT's Not All That

U.S. stocks held onto early-session gains for most of the session but eventually succumbed to a bit of weakness as Europe’s sovereign debt issues remained in focus and China appears willing to continue their pull-back of stimulus measures.

Stocks got off to a good start after Caterpillar’s results were released during pre-market trading but the results didn’t justify the reaction, unless you’re talking about the go-for-the-gusto behavior of this stock market that has people ignoring the signs of weakness. (If you want more specifics on these results, I’ll post some comments at the end of the letter.) But the recent weakness in Chinese stocks, off 8% in 10 sessions as traders fear removal of the stimulus measures, and a spreading contagion in Europe was just enough to sap momentum late in the session.

Consumer discretionary, industrial and basic materials were the only three of the major industry groups to close higher yesterday. Consumer discretionary shares remain on fire, up 125% from the March 2009 low and up 25% since February as the momentum trade comes in. Are you kidding me? These shares are now just 10% below their all-time high hit in 2007, but this time the unemployment rate is 10% vs. 5%, incomes ex-transfer payments are down instead of rising and the cash-out refi is dead. Performance chasers don’t care about these realities; their actions are blind to anything but quick money. Some things never change, and never will.

Financials led the decliners, with health care and utility shares the next worst performers.
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Brent Vondera, Senior Analyst
www.acrinv.com