Good morning. From my perch, it seems that there are two key assumptions being made by the bull camp. First, the glass-is-half-full crowd appears to be assuming that this market is experiencing a case of déjà vu; second, just like last year, there is the idea that this too shall pass.
As we've pointed out a time or two, this is the fifth (or perhaps even the sixth, depending on how closely you look at the charts) consecutive "summer of discontent" that the stock market has suffered through. But with the exception of 2008, the extreme heat that investors were forced to suffer through during the tough summer months wound up being a distant memory by the time Halloween rolled around.
Also falling into the déjà vu category are the key driving forces behind the current summer swoon. Just like last year, we're being treated to the debt troubles in Europe and the fear that the economy may fall right back into recession if things don't pick up soon. If you will recall, these are the same worries that caused the market to pull back about 16% in the summer of 2010. Thus, we really can't blame our heroes in horns for thinking that the best way to play things right now is to jump on what has historically been a decent buying opportunity.
Perhaps this explains the upward bias the market seems to have right now. Although the volatility remains high (Thursday was the 18th day out of the last 23 in which the DJIA closed with a gain or loss of at least 100 points), the indices have successfully tested the lower reaches of the recent decline several times and so far at least, have been able to put in a couple of higher-highs and higher-lows.
Perhaps the relatively upbeat attitude is in response to the idea that once again the cavalries will ride to the rescue of Wall Street; after all, it appears that the only reason the Federal Reserve makes a decision these days is to keep pushing stock and commodity prices higher. But Ben Bernanke has all but promised some sort of action (twisted or otherwise) in a couple of weeks. To hear Morgan Stanley tell it, the central banks of the U.S., Japan, the EU, and England are about to band together in an effort to put some shock and awe back into the game. Perhaps the phrase "Don't fight the Fed" is in the back of investor's minds these days.
Then there is the massive stimulus that the likes of the IMF's Christine Lagarde and even Nouriel Roubini are calling for. If the governments of the world can get their acts together, it probably wouldn't be too tough to round up a couple trillion dollars, euros, yen, pounds, or francs to break and/or fix some glass. When you think about it, it is exactly times like these that fiscal stimulus is needed. Traders may not want to be caught short when the powers-that-be open up their checkbooks, or in this case, head to the bond market to sell some more paper.
However, while the fix to the current ills sound logical enough, there seems to be rather stiff opposition forming to all actions on all fronts as politicians are starting to get a little testy about their inability to wave the checkbook and get things moving in the right direction. Jean-Claude Trichet got downright snippy yesterday at a press conference and the tone of the President's speech has clearly changed from the last time he was full-time on the campaign trail.
The problem is that things are not improving on the economic front. While Nomura and Goldman may be increasing their GDP estimates a smidge here and there, the key is that the growth just isn't happening. While it may indeed look like déjà vu all over again, we're not sure that this too shall pass as easily as many expect/hope. But then again, the leaves are starting to turn in our part of the world.
Turning to this morning:There appears to be a fair amount of skepticism surrounding the ability to get the President's bill passed into law given the political climate in Washington and the temporary nature of the items proposed. In addition, the brinkmanship in Europe (Germany demanding Greece meet all its obligations or else), coupled with new highs for Greek CDS, is causing some consternation across the pond. This is being countered by the calls for immediate action from the G-7, which meets this weekend in France.
On the economic front: We don't have any economic data for the U.S. to review before the opening bell, but we will get a report on wholesale inventories at 10:00 am Eastern.
Pre-Game Indicators
Here are the pre-market indicators we review each morning before the opening bell:
- Major Foreign Markets:
- Australia: +0.18%
- Shanghai: -0.05%
- Hong Kong: -0.23%
- Japan: -0.61%
- France: -1.40%
- Germany: -1.04%
- Italy: -1.58%
- Spain: -1.98%
- London: -0.57%
- Australia: +0.18%
- Crude Oil Futures: -$0.83 to $88.22
- Gold: -$10.00 to $1847.50
- Dollar: Lower against the yen, higher vs. the euro and pound
- 10-Year Bond Yield: Currently trading at 2.012%
- Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: -1.50
- Dow Jones Industrial Average: -2
- Nasdaq Composite: -0.8
- S&P 500: -1.50
Wall Street Research Summary
Upgrades:
- SLM Corp (SLM) - Barclays
- RPM International (RPM) - Credit Suisse
- Sunoco (SUN) - Goldman Sachs
- CNOOC (CEO) - Jefferies
- MGM Resorts (MGM) - Mentioned positively at JPMorgan
- Las Vegas Sands (LVS) - Estimates and target increased at JPMorgan
- Cisco Systems (CSCO) - RBC Capital
- Biogen Idec (BIIB) - UBS
Downgrades:
- Regeneron Pharmaceuticals (REGN) - BofA/Merrill
- Nalco Holdings (NLC) - Credit Suisse
- Tesoro (TSO) - Goldman Sachs
- Research In Motion (RIMM) - Jefferies
- Smithfield Foods (SFD) - Estimates cut at Morgan Stanley
- Volterra Semiconductor (VLTR) - Estimates cut at Stifel Nicolaus
- Micrel (MCRL) - Estimates cut at Stifel Nicolaus
- Intersil Corp (ISIL) - Estimates cut at Stifel Nicolaus
- Texas Instruments (TXN) - Target cut at UBS
- Tanger Factory (SKT) - UBS
- American Campus (ACC) - UBS
- Johnson & Johnson (JNJ) - Estimates cut at Wells Fargo
Long positions in stocks mentioned: None
