Daily State of Markets: Data Overload?

by: David Moenning

Good morning. As I wrote in this weekend's Big Picture State of the Markets report, I believe strongly that the key to success in this business over the long-term is to stay in tune with the driving forces of the market at all times. You don't have to agree with what is causing the market do its thing, but you must be able to objectively identify the reason(s) behind the move. Thus, the first step in this process is to identify the drivers of the action on a daily basis. Cutting to the chase, I'm of the mind that traders may have had too much data to process on Friday.

As you know, my daily missive is not designed to simply rehash of the day's news - you can get that just about anywhere. Instead, my objective is to focus on the key takeaway(s) of the session. However, this morning I'd like to do a quick rundown of the data that was presented to traders on Friday and see what shakes out.

Economic Inputs:

  • Retail Sales - Surprised to the upside with a gain of +0.6% (versus +0.4% and Augusts' +0.7%)
  • CPI - Largely a non-event at +0.1% vs. +0.2%
  • Empire Manufacturing (indicates the state of manufacturing in the New York region) - A BIG upside surprise at 15.73 vs 5.95 and Sept's 4.14 (August was 7.1, July 5.08).
  • University of Michigan's Confidence - Modestly disappointing at 67.9 vs. 68.7 (Sept 68.2)

Key Earnings Reports:

  • Google (NASDAQ:GOOG): After languishing since April, GOOG blew away everyone this quarter with $7.64 versus $6.66 on $7.29 billion (versus $7.04B). Google soared 11.2% on the day.
  • General Electric (NYSE:GE): Definitely did not bring good things to the lives of shareholders on Friday as EPS beat by $0.02 but the all-important revenue numbers were light at $35.89B vs. the Reuters estimate at $37.53 billion. The company said revenues were negatively impacted by lower sales and a reduction in GE Capital assets. Oops.

Mergers & Acquisitions:

  • Speculation surrounding a Yahoo (NASDAQ:YHOO) merger focused on the combination of AOL (NYSE:AOL) and Private Equity. Why do we care? M&A is all about confidence and valuations.

Bernanke and Friends:

  • QE II Ready For Launch - Ben Bernanke said Friday morning that unemployment is too high, inflation is too low, short-term rates are too high, and "There is a case for further action." So, book it Danno; QE II is coming to a bond market near you very soon.
  • Will QE II Help? This question may become the market's focal point very soon.

Banks Stink Up the Joint:

  • BKX Down Big (Again) - The banks were hit hard again on Friday with the BKX off -2.4% and down -5.9% over last three days
  • The Culprit - The foreclosure mess and the potential for litigation, confidence, etc to impact business
  • Why Do We Care? The market can't go up for long without the financials

Currency Wars:

  • Singapore widened the trading band for its currency
  • India intervened to push the Rupee lower
  • South Korea is pointing fingers at Japan, Japan is firing back
  • The Treasury conveniently postponed its report on currency cheaters until after the G20 meeting
  • Why Do We Care? Things don't matter in the market until they do and this one "could" matter at some point

Be honest now... How many of you were able to plow through the executive summary of the inputs without your eyes glazing over? Please accept my apologies for the abundance of data, but there WAS an awful lot of "stuff" to deal with on Friday and this morning's exercise was designed to emphasize this.

So, What's the Takeaway?

The current joyride to the upside has been driven by the hope/expectation that the Bernanke's latest adventure will save the day (I.E. kickstart the economy going into 2011). However, with the Empire Manufacturing report coming in SO strong and retail sales no longer tanking, the Fed "may" decide on November 3rd that "shock and awe" isn't needed here and that "starting small" might make sense. And as just about every talking head on TV has mentioned lately, anything less than $500 Billion of QE II is likely to be a disappointment to the market.

Now toss in the idea that the QE II announcement may trigger a "sell the news" trade as well as the miserable action in the banks lately and you are left with a market that may be getting tired. As such, we're going to advise some caution for a while. Perhaps this is silly and we might miss out on some upside. But with the market up +12.3% since September 1st based primarily on hope, we're reminded that opportunities are easier to make up than losses.

Turning to this morning... Stocks are waffling around breakeven at the moment, which is an improvement from earlier levels. However, a rise in the dollar is keeping the bears in the game so far in the early going.

Disclosure: No positions