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Investors witnessed the biggest one week decline for stocks of the year during the first week of the second quarter, as the Dow finished the shortened week down 1.15%. Contributing factors included hawkish commentary from the FOMC minutes released last Tuesday and mounting worries regarding Spain's ability to navigate the sovereign debt markets. Investors shouldn't expect next week to be much better. The March Non-farm payrolls (NFP) report released Friday showed the U.S. economy added just 120,000 jobs last month, far fewer than economists had been expecting. S&P 500 futures plunged shortly after the report was released.

Perhaps the most alarming thing to note about the state of the financial markets is how, by many measures, the situation seems to be reverting to the state of affairs investors witnessed last fall during the depths of the eurozone debt crisis. For example, based on the NFP number released Friday, employment growth in March was the slowest it has been since October. Additionally, the yield on Spanish 10-year bonds is now back at levels last seen in late November and early December, before the ECB's first LTRO.

Furthermore, the Swiss National Bank was forced to buy euros Thursday in order to curtail the franc which briefly surged through the 1.20 per euro threshold amid strong demand. This is reminiscent of the situation which occurred last September when investors flocked to the safe-haven currency as anxiety mounted in Europe.

In yet another example, the yield on Greek 10-year bonds (which briefly fell to around 18.5% the Monday after the bond swap) has now climbed to 22%, around where it was in September right before the situation began to deteriorate markedly.

In another example from the U.S., households are apparently "becoming less optimistic about their finances" according to Bloomberg, as consumer credit expanded by just $8.7 billion in February, the smallest gain since--you guessed it--last fall.

The problem for investors is that last fall, the S&P 500 was trading more than 20% below where it is now. The data are beginning to support the contention that the market is overbought. Previously, the idea that a pull-back was on the horizon was simply derived from the fact that after such dramatic gains, stocks were bound to take a breather--what goes up must come down just a little. Now however, the idea that a painful sell-off (beyond the 1% or so stocks lost last week) is coming is not just a gut-feeling, it is a prediction supported by economic and market realities. Short SPY (SPY) or buy puts.

Source: Deja Vu: It's October All Over Again As Market Braces For Correction