9/1/2010

Economic data for the session was mixed. On one hand, the August ADP Employment Change indicated that private payrolls fell by 10,000; this is contrary to the increase of 13,000 which was widely expected. This is tempered by an increase in the ISM Manufacturing Index which was 56.3 when a 52.9 was widely expected. Despite mixed numbers, the indexes surged higher with some 98% of S&P 500 stocks positive.

Apple Inc. introduces a new version of its Apple TV device. The device which streams movies and TV shows over the internet will be $99 from $229. The device which has been around since 2007 but has 'never been a hugh hit' says CEO Steve Jobs.

Auto sales experienced their worst August in 27 years. Slow downs were felt by all the participants from Toyota to Hyundai. J.D. Power and Associates' Jeff Schuster says 'There hasn't been enough horsepower behind the recovery to motivate consumers to regain their confidence and purchase vehicles at a higher rate'. Automakers are lowering costs on average at 3 percent or $2,681 per vehicle as well as decreasing production.

8/31/2010

Minutes released from the Federal Reserve's most recent meeting shows that there is an open debate about its latest step to impact the economy. The move to reinvest the proceeds of maturing mortgages and debt into U.S. Treasury is seen as move to keep money flowing through the economy. Some wondered if such a move would be enough to really help the economy.

Despite the discussion there was an almost unanimous consensus with the lone voice of dissention from Kansas City Fed President Thomas Hoenig who has long said that inflation will start of the supply of money injected into the system isn't decreased.

Research firm InsiderScore has reported that based on SEC public stock filings, officers and directors of Goldman Sachs, J.P. Morgan, Citigroup and Wells Fargo have sold about $100 million worth of stock so far this year. The move was in accordance to strict timing parameters placed on insiders. The move is seen as part of a general trend to diversify stakes in companies which had in the past seen as a great chance for wealth creation and a source of pride.

8/30/2010

Economic data for today failed to motivate. Personal spending came in as an increase of 0.4% while the consensus was for 0.3%. As a sideline note, personal consumption expenditures (PCE) increased just 0.1% month-over month.

Traders were on the sideline- volume on the NYSE barely broke 800 million shares which puts today's session as on the lightest of the year. Most people are waiting for the monthly payrolls report -out on Friday.

Federal Reserve Chairman Ben Bernanke will testify this week about his role in the bailout of financial entities deemed 'too big to fail'. As a key architect, Bernanke worked along side former Treasury Secretary Henry Paulson and now Treasury Secretary Timothy Geithner. The bipartisan Financial Crisis Inquiry Commission is tasked with investigating the roots of the financial panic of 2008.

8/27/2010

As discussed here yesterday, all eyes were on Federal Reserve Chairman Ben Bernanke today as he spoke at the Fed's annual conference in Jackson Hole, Wyo. Bernanke promised today the Fed was ready to step in should the US economy show additional signs of weakness. Following his comments, the broad market gained ground sharply and put in a solid intraday reversal. While Bernanke confirmed fears that the US economic recovery was indeed in a slowing phase, he also remained confident that economic growth would be seen in 2011. If required, the Fed is willing to purchase further debt securities in order to ensure that interest rates can be kept low.

Unity amongst Fed members in making their economic decisions was however not unanimous - some members dissented. For instance, the Federal Reserve Bank of Kansas City warned that continuing to keep interest rates at record lows amounts to a 'dangerous gamble' and another Fed governor voiced concern that investors could be alarmed if the Fed eyes further stimulus programs.

Of encouragement was the economic news that a downward revision of economic growth in Q2 did not come in as dire as initially feared. Specifically, the Commerce Department reported today that the US GDP increased by 1.6% between April and June (earlier estimate: a growth rate of 2.4%; consensus estimate: growth of 1.4%).

The University of Michigan released results from its final Consumer Sentiment Survey for August. Consumer confidence saw a slight downward revision (from a reading of 69.6 to 68.9) and came in modestly below expectations for a reading of 70.0.

8/26/2010

The newest initial jobless claims numbers released today by the Labor Department (for the week ended August 21) were not quite as dire as feared. They featured a total of 473,000 initial claims (consensus estimate: 485,000 claims), a number that had come down from the prior week's 500,000 claims which represented a nine-month high. In regards to continuing claims, they came in at 4.46 million (prior week's number: 4.52 million continuing claims).

The newest data from the Us labor market contributed to some early positive action on the indexes, but the market soon experienced a pullback as no leadership materialized to keep bullish momentum alive. Instead, listless, low-volume action ensued. Ultimately, the broad US equity market closed down for a fifth time in six sessions, at a new monthly low.

Investors may once again be looking to the Fed to provide some upside impetus for the faltering US economy. On Friday, Federal Reserve Chairman Ben Bernanke is scheduled to deliver a speech at a conference in Jackson Hole, Wyo that many hope will shed more light on what's in store for the economy, and what the fed's next steps might be. Many economists think the Fed has no simple solutions left and has 'spent many of its bullets'. Bernanke's speech will come two hours after the US government releases further economic data expected to show minimal growth between April and June of this year.

8/25/2010

After a strong decline over the last four sessions early action was not promising for the bulls today. The day started on a further weak note as market participants took their cues from overseas markets which did not bode well for the US equity market. Standard & Poor's just downgraded Ireland's sovereign debt rating from AA to AA-, and both the Shanghai Composite and the Nikkei are officially in bear market territory.

In the US, the latest durable goods orders data contributed further to the pessimistic early mood. In July, durable goods increased by only 0.3% (consensus estimate: a rise of three percent). When the transportation component of the calculations is excluding, durable goods orders were in fact down 3.8% (consensus estimate: a rise in orders of 0.5%).

Exacerbated selling pressure appeared on US equity markets after the newest home sales data disappointed market participants. New home sales for July lost 12.4% month-over-month, coming in at an annualized 276,000 units (consensus estimate: sales of 334,000 units).

Market observers attribute much of the today's intraday surge to short-covering which produced some volatile intraday action, notably in the home improvement retailers and homebuilders sectors. Meanwhile, more broad-based upside pressure was generated on the Nasdaq Composite, where large-cap technology issues such as Apple and Google provided upside leadership.

8/24/2010

A weak market (and a poor performance on the major indexes for a fourth session) was attributed to yet another disappointing report from the US housing market. More talk appears in the press about the fading US economic recovery and the possibility of another recession. Intraday, the Dow slid briefly below the 10,000-point mark for the first time in seven weeks; the Dow has lost some 375 points over the last four sessions.

According to the latest news from the National Association of Realtors, July sales of previously occupied homes came in at a very poor annualized rate of 3.83 million (consensus estimate: 4.7 million units). Sales - which dropped 27% in July - have thus declined to their lowest level in 15 years. Market observers continue to point out how home sales have been losing ground since the expiring of homebuyer tax credits at the end of April. What is more, such declines have occurred even though mortgage rates are at record lows.

Adding to the malaise in the housing market was the news that the total supply of homes on the market is now roughly a full year (12.5 months).

8/23/2010

In light trading, an early advance was sold down as investors fled equities in spite of more corporate M&A activity. The prevailing sense among market participants appears to be that the US economic recovery has all but stalled. Investors appear unwilling to place significant bets - the last two weeks have now brought seven sessions where total share volume on the NYSE could not break 1 billion shares. On the broad market, volume is down some 25% as compared to the same time period last year.

In today's M&A activity, a bidding war appears possible between Hewlett-Packard and Dell over data storage company 3PAR. The past few weeks have brought a flurry of M&A activity which is generally regarded as a positive for the economy. Some observers however caution that companies can revert to mergers and acquisitions in order to boost profits though cost-cutting rather than via increased revenue growth. Another downside of mergers is that they frequently promote job losses, not a welcomed element in the current dismal US labor market.

While today brought no market-moving economic data, reports scheduled for release this week might paint a gloomy picture of the US housing market, where US home sales are expected to come in very weak and where Q2 GDP growth may come in at only 1.4%, less than expected.

8/20/2010

On this options expiration session, volume output rose modestly, but participation in trading on this late August day was still not overwhelming (some 1.1 billion shares were traded on the NYSE). The bears were in charge early on but gave back much of their gains on the Dow and the S&P 500; the Nasdaq 100 even closed positive for the day. Tech issues may have outperformed given in-line earnings reports from Marvell (the company also announced a half billion dollar share repurchase program), as well as from Hewlett-Packard.

In the absence of notable corporate or economic data, investors appeared focused on the poor economic recovery prospects. Some market analysts fear that this lukewarm economic outlook will be reflected in an equally sluggish outlook for the equity markets. Despite the sense of gloom, the US indexes did not fare all that poorly: the Dow closed off 0.9% for the week, the S&P 500 index slipped 0.7%, and the NASDAQ Composite rose 0.2%.

In other news, the US Treasury Department reported today that close to 50% of the 1.3 million homeowners who initially enrolled in the Obama administration's mortgage relief program are no longer part of that effort. The US government had set aside $75 billion to address the wave of foreclosures hitting the country; the program was to assist homeowners are risk of foreclosure by reducing their monthly mortgage payments. According to RealtyTrac, more than 2.3 million homes have gone into foreclosure since late 2007. Economists anticipate the number of foreclosures to increase into 2011.

8/19/2010

Once again, while many corporate earnings are coming in relatively strong (and M&A activity has also recently perked up), US economic data suggests not all is well with the much-touted economic recovery. Today, market participants appeared to take their cues primarily from two disappointing economic reports, as follows:

According to the US Labor Department, initial claims for unemployment benefits were up unexpectedly last week, rising by 12,000 to now half million claims (the first time they were this high since November). The prior week, claims had come in at an upwardly revised 488,000, and consensus estimates had been for 465,000 claims. Notable is further that initial claims have now been up on four of the past five weeks.

The Federal Reserve of Philadelphia released its newest manufacturing activity numbers today. The data shows that manufacturing activity in the mid-Atlantic region has declined in August. While consensus estimates had been for a reading of 7.5, the actual Philadelphia Fed Index reading was negative 7.7 instead (values below zero indicate a contraction of activity). Market observers called the number 'awful' and fear that this could be an indication that the manufacturing sector has run out of steam (after having perked up earlier this year).

M&A activity appears to have picked up in recent weeks, and today brought another indication of this. Intel said it will acquire security-software provider McAfee for $48 per share in cash (a 60% premium over McAfee's closing stock price from yesterday).

8/18/2010

In more low-volume summer trading, the indexes managed to drift modestly higher (after a relatively poor start) on low volume and an absence of any noteworthy market leadership.

In a slow news day, perhaps the most interesting item came from formerly bankrupt automaker General Motors (GM) which filed for an initial public offering (IPO) today, underwritten by Morgan Stanley, JPMorgan, Bank of America, Merrill Lynch, and Citigroup. Following the IPO, GM intends to list its shares on the NYSE and the Toronto Stock Exchange. Trading would commence in late October. One of the goals of the IPO is to recoup at least a portion of the bailout money the company received from US taxpayers. The press spoke of a 'landmark IPO' although critics say this moniker is overblown. The US Treasury currently holds some 300+ million shares of GM and apparently plans to sell about 20% of its stake.

Some volatile market action was seen in the retail stocks sector today: Target's Q2 earnings came in below analysts' forecasts and the company offered only a lukewarm sales outlook for the remainder of 2010. One bright spot for investors was however that Target intendeds to compensate for its weak sales with an increased emphasis on groceries sales and by offering new discounts for credit card holders. Target's stock closed up two percent for the session in volatile trading.

8/17/2010

Today's broad buying occurred on overall light - but nonetheless increasing - volume. In the afternoon, the indexes faded and gave back roughly half of their initially very strong gains. Still, the broad market had its best session (on a percentage basis) in two weeks. Some of the gains were driven by M&A activity (of which we also saw some yesterday): BHP Billiton has expressed an interest in acquiring Potash for $130 per share. While Potash apparently turned down the offer, this deal would certainly have qualified as a large-scale takeover and thus suggests that market sentiment has improved. The materials sector outperformed the broad market today.

Strength was also seen in the retail sector today on the heels of Dow component Wal-Mart's improved forecast. Home Depot, also a Dow component, released better-than-expected earnings for the latest quarter, but the company's outlook was mixed. Home depot's stock rose more than three percent today while Wal-Mart's was up 1.2%.

Among today's economic data releases, the Commerce Department reported that July housing starts (for homes and apartments) underperformed, coming in 1.7% higher from the prior month at an annualized rate of 546,000 units (consensus estimate: 555,000 units). Meanwhile, the number of building permits issued in July decreased by 3.1% month-over-month to an annualized 565,000 permits (consensus estimate: 573,000 permits). Ever since the expiration of government home buyer tax credits at the end of April, home sales have been struggling.

July's Producer Price Index was up 0.2%, meeting expectations. When excluding food and energy, the PPI saw a gain of 0.3% month-over-month in July (consensus estimate: an increase of 0.1%). Also reported today were July industrial production numbers - they were up 1.0% in July (consensus estimate: a rise of 0.6%). One market observer suggested that the industrial production data was 'fairly robust'.

8/16/2010

Last week, the broad market suffered a strong loss approaching 4%. In a bit of a spillover, the major indexes suffered further losses early on today, but then recovered to virtually unchanged closes. Volume was called 'pathetic again' by one commentator, as the market produced one of the lowest volume session of the year. Market observers suggest that short-term traders are in control of the market, saying that long-term investors are conspicuously absent which makes trading more erratic.

Pressuring US equities early on was Japan's lower-than-expected annualized second quarter GDP (0.1% growth in Q2 as opposed to 1.2% growth in Q1), as well as weakness in European markets. In the US, manufacturing in the New York state area also came in below expectations: The Empire State Manufacturing Index was higher in August compared to July (coming in at a reading of 7.1 versus the prior month's value of 5.1), but economists' expectations had been for a rise to 8. Market observers suggest there are signs of slowing economic growth globally, not merely in the US. Just last week, poor reports had come from China as well.

Lukewarm news also surfaced from the housing front: According to the National Association of Home Builders, the monthly index of builders' sentiment was off again in August, declining for a third consecutive month.

In M&A news, Dell announced it will acquire data-storage company 3Par for $18 per share (representing an 87% premium over 3Par's closing stock price from last Friday). News also came from the airline sector - TAM S.A. and LAN Airlines will merge their holdings to form a single parent entity. The news boosted the Amex Airline Index by 2.4%.

8/13/2010

The latest earnings season is now largely over and investors are looking for new potential market catalysts. As discussed here previously, there has been some discrepancy between earnings (largely positive) and economic data (not particularly rosy), prompting more and more discussion about the potential for a 'double-dip' recession.

This week, the major indexes slid for four days in a row, with the S&P 500 off close to 4% for the week. Poor economic data was the driver of much of the bearish action, market analysts note. In today's session, the US market was weak in spite of positive data from Europe, where eurozone GDP came in above expectations.

Among the US economic data released today, July Consumer prices were up 0.3% (consensus estimate: an increase of 0.2%). When food and energy are excluded from the calculation, US consumer prices rose 0.1%, meeting economists' expectations. In other economic news, total business inventories were up 0.3% in June; retail inventories rose 0.8%. Because retail sales have weakened in recent months, the rise in inventories indicates that goods are being accumulated rather than shelves being restocked. The most recent read on retail sales for July shows an increase of 0.4% (consensus estimate: a rise of 0.5%). When autos are excluded from the calculation, retail sales increased by 0.2%, as anticipated.

Finally, the University of Michigan released its preliminary Consumer Confidence Survey for August today. The data shows consumer confidence improving modestly to a reading of 69.6 (consensus estimate: a reading of 70.0).

8/12/2010

A combination of Cisco's lukewarm earnings report (see our report from Wednesday) and a new dose of poor economic data brought a third consecutive down-session for the major indexes (the broad market is currently down almost 4% for the week).

The news by the US Labor Department that the week ended August 7 brought the highest weekly initial jobless claims count since February of this year weighed heavily on the market. Initial jobless claims for that time period came in at 484,000 (consensus estimate: 465,000 claims). In contrast, we saw a slight improvement in continuing claims which dipped to 4.45 million from 4.57 million; but once again, a good part of that decline is being attributed not to an improvement in the labor force, but rather to the jobless benefits expiring for the unemployed.

In other notable earnings news, General Motors (GM) surprised with the positive news that the company was showing a second straight quarterly profit. GM is 61% owned by the US federal government; the company is currently working towards a public offering of its shares. Also surprising was the announcement that GM's CEO Ed Whitacre will step down in September, to be replaced by GM board member Daniel Akerson. Akerson heads the global buyout unit of The Carlyle Group, a private equity firm.

8/11/2010

Yesterday, we suggested that the Fed's much less enthusiastic assessment of the strength of the US economic recovery (as indicated by their post-FOMC meeting policy statement) might have investors worried. Today, market participants did in fact show an adverse reaction to the Fed's acknowledgment that the pace of economic recovery had slowed, and to its plan to use the proceeds from mortgage- and agency-backed principal payments to buy US Treasuries.

Some economists suggest the Fed's policy statement from yesterday has spooked investors and was thus a mistake. While acknowledging that the US economy was slowing, the move into Treasuries is seen as more symbolic than anything else - it may not be effective in actually boosting the economy.

There are signs all around that economic growth is stalling, not just in the US, but worldwide: China reported a slowing of industrial production July; machine tool orders in Japan increased by only 1.6% last month, less than had been expected; the US trade deficit rose 19% in June to reach its highest level since the fall of 2008.

More bearish news surfaced after the bell today: Cisco - the largest network equipment maker in the world - reported quarterly revenue short of Wall Street's expectations shattering hopes that growing Internet traffic would have improved the sales of the company's routers and switches. Given its global reach, Cisco is considered a technology bellwether and its earnings releases thus carry a lot of weight.

8/10/2010

Market news was dominated by the Fed meeting. The fact that the Fed appears more worried about the strength of the US economic recovery has investors anxious and contributed to today's declines on the major indexes (although stocks rose after the Fed released its policy statement at 14:15). For the first time in quite a while, the Fed delivered a less upbeat assessment of the US economic recovery, calling economic growth 'more modest' than anticipated in June and suggesting that 'the pace of economic recovery is likely to be more modest in the near term than had been anticipated'. Given that inflation expectations remain benign (more and more economists are in fact worried about deflation rather than inflation), the Fed kept the target rate for its key interest rate in a range of zero to 0.25%, saying it will keep rates that low for an 'extended period.'

While the Fed had eased out of stimulus incentives earlier this year, it will now reintroduce some of these measures: The Fed plans to invest in mortgage bonds and use the proceeds to buy government debt - the intent is to lower interest rates on mortgages and on corporate debt. Perhaps some $10 billion a month are likely available to buy government debt, economists estimate, and the starting date for purchases is August 17, with more details to be released on Wednesday. Because the Fed's balance sheet will be held constant, the buying of Treasuries does not amount to quantitative easing.

In other news, the US equity market suffered early on in reaction to trade data from China considered disappointing. Also weighing on investors' moods was a surprising 0.9% decline in Q2 US nonfarm productivity and wholesale inventories increasing by only 0.1% (i.e., data coming in weaker than expected).

8/9/2010

In a session that lacked conviction (on the NYSE, we saw the lowest share count of the year today), equities drifted slowly and steadily higher, with trading remaining confined to relatively narrow ranges. Not surprisingly, market commentators say there were no real catalysts for the session. Furthermore, traders were in a holding pattern ahead of an interest rate decision by the Federal Reserve to be announced tomorrow.

While the consensus remains once again that the FOMC will keep its target interest rates unchanged in a range between zero and 0.25%, market participants are always a little nervous as to how the Fed phrases its policy statement. Because of the recent slowdown in the economy, as indicated by a string of relatively poor economic data releases, market observers appear to have detected that investors are optimistic the Fed is about to announce a re-launch of sorts of its former economic stimulus programs (which were terminated earlier this year when the US economic recovery appeared to be running smoothly). It is believed the Fed might for instance announce it will start buying up mortgage-backed securities again, or purchasing Treasury bonds.

According to some economists, the Fed has a number of tools available to bring some stimulus back into the market, and to boost consumption. This is key, as the average US consumer is currently more interested in paying off debt and perhaps in building savings than in providing an economic boost by spending more. Bank lending levels have also remained low, as both borrowers and lenders have been cautious.

Some market observers even see the possibility the Fed might lower interest rates even more; however, that scenario is considered unexpected and might be associated with considerable risks: It might send a strong warning signal to investors and / or be associated with rising inflation. Some comment that lower interest rates at this time might cause investors to panic and push the US back into a recession. In any event, the Fed will have to be very careful in how it phrases its policy statement and in the picture it paints of the US economy.

8/6/2010

Once again, the government's non-farm payrolls report (the so-called 'jobs report') failed to inspire, with the newest labor market data indicating the US is simply not creating nearly enough new jobs to reduce the current unemployment rate. Not only was private sector hiring cautious for a third straight month, tens of thousands of jobs were cut at all levels of government (with many prior but temporary census jobs now eliminated). To make matters worse, economists fear that the unemployment rate - currently at 9.5% (for a second consecutive month) - might soon climb back into the double digits due to the slow pace of new jobs creation.

Here's the data from the Labor Department in a nutshell: In July, private employers produced a net gain of 71,000 jobs, but after accounting for lost employment at the local, state and federal levels, a net jobs gain of only 12,000 positions remains. 143,000 temporary jobs for the US census came to an end in July. Economists estimate that in order to keep pace with new entrants into its workforce, the US would have to create some 200,000 new jobs every month just to hold the unemployment steady

The outlook is not rosy either, as analysts expect that the effects of the government's stimulus package might start to wear off in the second half of this year. President Obama pointed out that the last seven consecutive months had brought a gain in private-sector jobs, but he also acknowledged that progress 'needs to come faster'. The poor jobs report is prompting some market observers to suggest the Fed may have to take further action to support the flagging economy when it meets next week.

Even the fact that the headline unemployment rate stayed unchanged at 9.5% was not seen as a cause for celebration. In fact, this may simply reflect that those who have given up looking for work contribute to a shrinking of the workforce. Market observers also note that poor economic data tends to keep retail investors away from the market, a fact once again reflected in very low volume output on the broad market.

8/5/2010

Market observers spoke of a 'lack of interest in stocks' today, as a flat and listless session brought slightly lower closes on the major indexes. A non-committal attitude was reflected in the very low volumes on the major indexes - for instance on the NYSE, today's volume total of only 875 million shares was characterized by one market observer as 'pathetic'.

Much of today's tepid action was explained by uncertainty ahead of tomorrow's release of the government's pivotal non-farm payrolls report. Yesterday, market participants welcomed positive results from the ADP report which had come in better than expected (see yesterday's Market Report). However, while giving a certain indication, this report is not all that closely reflective of the government's non-farm payrolls data.

Disappointing were today's weekly jobless claims numbers; they caused even more consternation for tomorrow's jobs report which reflects July employment. Even though weekly claims data will not play a part in the calculation of that payrolls report, the latest claims numbers do not appear to bode well for the US labor market: Initial jobless claims for the week ended July 31 came in at a three-month high, with a total of 479,000 initial claims (consensus estimate: 455,000 initial claims). Meanwhile, continuing claims were lower by 34,000 from the prior week; however, the total number of continuing claims remains very elevated, still exceeding 4.5 million.

In an interview with CNBC, President Obama said today that US taxpayers would see a full repayment of the bailout funds the Obama administration made available to rescue General Motors. The money would become available once the formerly bankrupt automaker makes a public stock offering, scheduled for later this year. Obama was quoted as saying: 'We expect taxpayers will get back all the money my administration has invested in GM....over time, that is going to be extraordinarily significant. It means we stood up this industry and you know what, we got a return.' Both GM and Chrysler, which received a total bailout of $60 billion from the US government, as well as Ford, which did not accept any federal funds, are currently once again profitable - for the first time in six years.

8/4/2010

US equities reversed from a down-session yesterday with upside gains, catalyzed by positive economic news, market observers suggest. The session was however characterized by a lack of leadership; still, the market drifted higher on very low volume. Earnings report continue to be largely positive (today coming from CBS, Electronic Arts, Priceline.com, and Anadarko Petroleum), although there were some disappointing exceptions (Whole Foods Market).

Investors focused on the newest reading from payroll company ADP which announced that private employers had boosted their hiring in July, providing better-than-expected results. According to ADP, 42,000 new private sector jobs were created last month (consensus estimate: 25,000 new jobs). The ADP report is often seen a precursor to the government's monthly nonfarm payrolls report, scheduled to be released on Friday. Predictions are that 90,000 jobs were added last month and that the unemployment rate will come in at 9.6%. Another test will be the initial jobless claims number which will be released on Thursday.

Also exerting a positive effect on trading today was the release of the July ISM Service Index numbers. Coming in at 54.3, these exceeded expectations for an ISM reading of 53.0 (in comparison: June's Ism reading was 53.8). Given that the services sector accounts for the majority of employment in the US, a higher reading shows some expansion in a crucial sector.

Apparently limiting stocks gains today were rumors from China that the country might impose stress tests on its banks. Notable is that these tests would factor in China's declining residential property values and the effects these would have on the banks' bottom lines.

8/3/2010

A combination of profit taking after yesterday's strong rally and a negative reaction to the newest housing numbers brought on a strong intraday dip in the early going this morning from which a partial recovery was seen later in the day. According to the National Association of Realtors, in June pending home sales were off 2.6% month-over-month (consensus estimate: a 5.0% decrease). That is the lowest reading on the index of pending home sales (designed to measures the number of people who signed contracts to purchase homes) since its inception in 2001. Given that government tax credits have expired, many observers think the US housing recovery will be slow, as reflected by today's poor numbers.

According to the Commerce Department, June also brought flat consumer spending and income numbers, a further reflection of an economy that is improving only slowly. Both personal income and spending were unchanged in June (in comparison, in May, incomes had been up 0.3% and spending had been up 0.1%). Furthermore, the Department also reported that the annualized savings rate was now at 6.4%, the highest in close to a year (and three times as high as the pre-recessionary savings rate seen in the 2007).

The commerce Department also announced today that factory orders had declined 1.2% in June, off by a second straight month, losing more than double the amount economists had expected.

Automakers released July sales figures today: Ford said its monthly sales were up 5% year-over-year. The company also reported that its retail market share has been increasing in 21 of the last 22 months. Chrysler Group also reported a 5% increase in its US in July. Meanwhile, Honda reported it saw its US sales decline close to 6% year-over-year, Toyota was off by nearly 7% but Nissan reported a 15% increase in North American sales in July.

8/2/2010

The US equity market started on a solid footing after bright earnings news from BNP Paribas and HSBC and from a positive overnight session in China (Shanghai / Hong Kong).

The US mood improved even further after the government reported a strong reading on the ISM Manufacturing Index for July; it came in at a reading of 55.5 (consensus estimate: a reading of 54.2). According to the Commerce Department there was also a surprising 0.1% advance in construction spending in June (consensus estimate: a decline in spending of 0.8%). Here, however, it must be noted that any strength on the index came purely from government building activity. In fact, construction spending data from the private sector - both in housing and nonresidential projects - was in decline.

Also providing a boost for the market were soothing words from Federal Reserve Chairman Ben Bernanke who gave a speech in South Carolina. Bernanke stated that the worst of the financial crisis had been overcome, although he cautioned that '... we have a considerable way to go to achieve a full recovery in our economy, and many Americans are still grappling with unemployment, foreclosure and lost savings'.

US Treasury Secretary Geithner also spoke comforting words in New York today, promising not to encumber Wall Street with red tape. In return for the favor, he asked the large banks be more forthcoming with business loans. The recent signing into law by President Obama of a 2,300-page package of financial regulatory reforms has the banking sector worried, and Geithner is trying to bring a sense of calm and stability to the industry. Today, he promised that the Obama administration ' ....will move as quickly as possible to bring clarity to the new rules of finance,' adding that 'We will not risk killing the freedom for innovation that is necessary for economic growth.'

7/30/2010

We saw a flat close to the month of July that brought gains of roughly seven percent to the broad market, the best showing in a year. Once again, a pattern of strong earnings conflicting with lukewarm US economic data was apparent, a topic discussed in our Market Outlook recently. Today, poor economic data appeared to temper any earnings enthusiasm; trading was flat to lower although the indexes recovered with bullish intraday moves.

The US Commerce Department reported today that US second quarter GDP grew at a pace of 2.4% (consensus estimate: a growth rate of 2.5%). Q2 data came in considerably lower than the upwardly revised Q1 growth rate of 3.7%. This disappointing GDP gain - the economy's weakest showing in nearly a year - was seen as a catalyst for today's early intraday losses on the indexes amounting to more than a percent. Meanwhile, second quarter personal consumption data showed an increase of 1.6% (on the heels of a 1.9% rise in Q1). Market observers commented by saying that this is another example of the US economic recovery slowing to a crawl and that this could lead to unemployment returning to double digits.

According to the Thomson Reuters/University of Michigan's Surveys, US consumer sentiment fared poorly in July, sagging to its worst reading since November 2009. Contributing factors were the still poor outlook for job growth and the prospect of flat incomes

The Institute for Supply Management reported that Chicago PMI came in at 62.3, stronger than expected.

7/29/2010

Some profit taking materialized on the broad market shortly after the open, but equities rallied back fairly strongly after dipping to their lows around noon. Still, the indexes lost ground modestly for the session. Early strength had been catalyzed by the Euro hitting a new two-month high this morning and by advances on Europe's major stock exchanges.

In the day's economic data releases, there was only one item: Initial jobless claims for the week ended July 24 came in at 457,000 (consensus estimate: 464,000 initial claims). Meanwhile, continuing claims reached 4.57 million compared to the 4.48 million claims registered a week prior.

Presenting the newest data on foreclosures in the US, RealtyTrac said the total number of American homeowners who received foreclosure warnings in the first six months of this year was roughly 1.7 million, a number that exceeds last year's foreclosure rate by 8%. Market observers comment that a poor recovery in the labor market (a lack of job growth) coupled with overall weak economic growth contributed to this poor showing.

Some turbulent trading was seen today on the widely-held Cisco stock. In fact, trading in Cisco was temporarily halted intraday after a circuit breaker had been triggered due to a move of 10% or more in within a five-minute period. The halt is part of a set of new rules implemented by the SEC in the wake of the ominous 'flash crash' from early May; the contentious rules were introduced in June and are being tested for six months.

7/28/2010

Among today's economic data releases, June durable goods orders showed what economist called a 'surprising' decline of one percent (consensus estimate: a rise of one percent). Excluding transportation, durable goods orders were off 0.6% (consensus estimate: a rise of 0.6%). Furthermore, last month's durable goods order (both total and excluding the transportation component) were revised downward, now showing a 0.8% decline and a 1.2% increase, respectively. In essence, new orders for long-lasting US manufactured goods were thus down for a second consecutive month. Market observers say this could be an indication that the US economic recovery has slowed.

Equally uninspiring was the data contained in the Fed's latest Beige Book (which is a government summary of national economic conditions), as it did not provide any new insight into the US economic recovery. Rather, it simply reflected the comments recently made by Fed Chairman Bernanke - revealing that US economic growth had lost steam in some Fed districts.

Market observers comment there continues to be a discrepancy between largely positive corporate earnings and economic reports. According to Thomson Reuters Proprietary Research, just under half of S&P 500 companies have now reported earnings and roughly three quarters have beaten Wall Street's expectations.

7/27/2010

In relatively uninspiring market action, the major indexes churned to flat closes today, with the Dow narrowly continuing its strong winning streak, but the S&P 500 and the Nasdaq 100 snapping their recent winning runs.

Financials today benefited from the news from Europe that the Basel Committee on Banking Supervision will be less stringent in regards to enforcing capital and liquidity requirements for European banks. As well, good earnings results from UBS and Deutsche Bank did their part to convince investors to buy into the sector.

In contrast to the recent earnings cheer, some disappointment came today from the steel sector where AK Steel reported it would cut production capacity due to weaker demand. In addition, US Steel reported a net loss with earnings coming in below Wall Street's expectations. Also uninspiring was the news from oil giant BP: the company reported a hefty second quarter loss largely attributable to the huge expenses associated with the persistent oil spill in the Gulf of Mexico. BP will be replacing its CEO later this year and will also sell some $30 billion in assets over the next year and a half.

In US economic data, a mixed picture was presented today: According to the Conference Board, consumer confidence in July tumbled to its lowest value since February. July's Consumer Confidence Index reading came in at 50.4 (consensus estimate: a reading of 61.0). Market observers say that the poor confidence numbers drove the consumer discretionary sector to a loss of 1.2% and impacted retailers as a group (which tumbled 1.9% for the session). In contrast, more appealing data came from the US housing sector: Home prices were up in May.

7/26/2010

Positive earnings thus far, a good outlook from FedEx, a strengthening Euro, and some surprisingly strong housing sales numbers did their part to keep the recent stock market rally going. Some market performance data has been posted above.

According to the Commerce Department, June brought an almost 24% surge in new home sales month-over-month. This brought the annualized rate of new home sales to 330,000 (consensus estimate: an annualized 310,000 units). Just in May, sales had hit a record low of an annualized 267,000 sales. In contrast, in the summer of 2005, sales had hit an annualized 1.39 million units. Market observers commented that while the withdrawal of government stimulus money from the housing sector has been felt hard, it should not lead to another housing meltdown.

Shipping company FedEx today added $0.20 to its Q1 earnings per share outlook, with the company now suggesting that Q1 fiscal profits are expected to fall within a range of $1.05 and $1.25 per share, exceeding earlier consensus estimates (made some six weeks ago) of $1.01 per share. FedEx said overnight and ground delivery businesses are performing better than expected; the company is also speaking of a 'moderate global economic recovery'.

Part of the reason for the recent rise in US equities has been attributed to the steadily strengthening Euro. The Euro was again strong today, climbing 0.7% against the greenback, and it is now close to putting in a two-month high. In contrast, the US dollar has tumbled to its lowest level in since early May. European markets traded positively today following last week's release of the bank stress tests (where merely seven of 91 banks failed).

7/23/2010

A lack of major US economic data scheduled for release today left market participants looking for other catalysts. They turned to news from Europe where results of the much-anticipated 'stress tests' of European banks were released. Of 91 banks scrutinized, only seven failed the stress test (among them Germany's Hypo Real Estate and Spain's Espiga Savings Bank). Critics maintain that the tests may not have been rigorous enough and say that the banks that failed were tokens, with some banks 'needing to fail' so that the tests would be deemed credible. European regulators say the tests confirm that the EU banking system is resilient.

Among key US equity players, GE raised its dividend by 20% today. GE stock was boosted by more than three percent, contributing strongly to the S&P 500 closing above the crucial 1100-point level. According to one market observer, GE's dividend hike inspired confidence in the US economic recovery: 'GE is a company whose tentacles extend throughout large parts of the economy, and (the hike) clearly shows they're (having) a bit more visibility on their future cash flows'.

The trend toward strong Q2 earnings appeared confirmed today, with key players such as Honeywell, Ingersoll-Rand, American Express, Microsoft, McDonalds, and Verizon all reporting good earnings results. A rare exception was Amazon.com: it came up short in the earnings game.

7/22/2010

More than 100 earning reports poured in today. A common refrain appears to be 'better-than-expected', with some of today's examples involving Union Pacific, UPS, 3M, Caterpillar (both Dow components issued upside guidance), AT&T, and from a number of regional banks. Speaking of banks, tomorrow a series of much anticipated 'stress tests' of European banks will be released.

Market observers feel the market's knee-jerk reaction to Fed Chairman Bernanke's commentary late yesterday was an overreaction. Particularly so because Mr. Bernanke did not say anything new or surprising, and also given that his commentary simply reflected what had already been stated in the minutes from the last Fed FOMC meeting.

Among today's key economic data releases, the latest initial jobless claims came in higher, gaining 37,000 week-over-week and now standing at a total of 464,000 (consensus estimate: 445,000 initial claims). In contrast, continuing claims declined by 223,000 week-over-week and now stand at just below 4.49 million. Critics maintain however that the decline can be largely attributed to the expiration of jobless benefits, pointing to the fact that the House today approved a bill that would extend jobless benefits.

In other economic data, existing home sales in June were down 5.1% month-over-month and now come in at an annualized rate of 5.37 million units (consensus estimate: 5.09 million existing home sales). Supply of unsold homes is now at 8.9 months, rising from 8.3 months. Meanwhile, June leading indicators declined 0.2% (consensus estimate: a slip of 0.4%).