Daily State of the Markets: Scaring Ourselves

by: David Moenning

Good morning. I have long been of the mind that managing money based on a macro view of the world is exceptionally difficult. First and foremost, stocks don't always pay attention to the macro themes of the day. The most recent bout of stock market weakness is a perfect example of this. Although the economic reports had been coming in below expectations for some time, it wasn't until just a few days ago that anybody cared about the data. But now the weaker-than-expected numbers are all anybody can talk about.

If you've had the sound up on the business news shows recently, you'll likely agree that the markets and the media suddenly care a lot about the data. It's as if all of a sudden this is fresh news and everybody is bearish. While I'm not fond of tooting my own horn, I would like to point out that I've been talking about the crummy numbers for some time now and I even penned a piece entitled "Are They Watching in Washington?" The point here isn't that I was right or that my increased cash levels were unique. No, the point is that once again, the media might be overdoing it.

When I looked at the economic calendar at the end of May and added up the hits and misses, the first thing that came to mind was that this type of analysis might be misleading. Sure, 28 of the 35 reports had come in below expectations. However, there hadn't been 25 disastrous reports. I was simply trying to point out that there was some data to support the idea that the economy's momentum looked to be waning.

Based on the data I reviewed, I assumed that stocks would likely pull back a bit. Empirically speaking, I was expecting a run-of-the-mill corrective phase. But to be clear, I have seen nothing in the data to suggest that the "R word" should even be up for discussion. And like the folks in Washington, I expected the soft patch, which was likely triggered by the turmoil in the Middle East and the triple tragedies in Japan, to be temporary.

However, based on what I've been hearing over the past few days, I'm beginning to get concerned that we might be scaring ourselves into recession. Remember, news travels fast these days. Today, people get the headlines on their phones, their laptops, their tablets, and in old-fashioned ways like their desktop computers, the radio and/or the TV news. And they get it instantly. So, unlike the early days of my career when the public was clueless as to what the economy was doing, nowadays everybody knows that the jobs report was a big miss. They know that the stock market is down. They probably have heard that housing is in a double-dip. And yep, they even know that China's economy is slowing by design.

If you really want to scare yourself, ask where the growth is going to come from now that all of the stimulus money has been spent. Ask why analysts are still busy upping earnings estimates to record levels when the economy is slowing. Ask if China will continue to power global growth or decide to worry about inflation. Ask if there is a way to get out of the situation in Greece. And ask how on earth we are going to deal with more than $14 trillion in debt here at home (which, of course, doesn't include all the unfunded liabilities) with an aging population.

My key point this morning isn't to try scaring anyone -- all of the issues listed above are well known. Nope, the point is that all of a sudden, traders are focused on the negatives. And although the recent data isn't good, it really isn't all that bad either. Thus, I truly hope we aren't scaring ourselves into something serious here.

Turning to this morning: Comments from ECB President Jean-Claude Trichet regarding the central bank's stance on bond exchanges in Greece have allowed traders to embrace a more upbeat attitude across the pond and have had a positive impact on the futures in the U.S. so far.

On the economic front: There are no major economic reports scheduled for release before the opening bell.

Thought for the day: Will you make time for you today?

Pre-Game Indicators

Here are the pre-market indicators we review each morning before the opening bell:

  • Major Foreign Markets:
    • Australia: -0.16%
    • Shanghai: +0.64%
    • Hong Kong: -0.35%
    • Japan: +0.67%
    • France: +0.28%
    • Germany: +0.58%
    • London: +0.21%
  • Crude Oil Futures: -$0.50 to $98.51
  • Gold: -$1.00 to $1546.20
  • Dollar: Lower against the yen, euro and pound
  • 10-Year Bond Yield: Currently trading at 3.031%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +5.90
    • Dow Jones Industrial Average: +50
    • Nasdaq Composite: +7.22

Wall Street Research Summary

Upgrades:

  • Mechel Steel (MTL) - BofA/Merrill
  • Nabors Industries )NBR) - Mentioned positively at Bernstein
  • Symantec (SYMC) - Cowen
  • PF Chang's (PFCB) - Credit Suisse
  • Corn Products (CPO) - Deutsche Bank
  • Juniper Networks (JNPR) - Evercore Partners
  • BE Aerospace (BEAV) - Added to Conviction Buy at Goldman Sachs
  • Xilinx (XLNX) - Goldman Sachs
  • FedEx (FDX) - Mentioned positively at UBS
  • Prudential (PRU) - Estimates increased at UBS

    Downgrades:

  • Southern Copper (SCCO) - Citi
  • Complete Genomics (GNOM) - Cowen
  • CA Technologies (CA) - Cowen
  • Citrix Systems (CTXS) - JPMorgan
  • Frontier Communications (FTR) - Macquarie Research
  • Research In Motion (RIMM) - Morgan Keegan
  • Spring Nextel (S) - Stifel Nicolaus

    Long positions in stocks mentioned: None