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
Friday, May 14, 2010
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
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