As expected, the rally did not carry over from Monday's massive surge. Given the myriad worries the markets have right now, I would look for the markets to selloff again on Wednesday. It might be a good time to deploy some small amounts of dry powder to buy blue chip companies with low valuations, solid balance sheets and good yields like Microsoft (MSFT) on any significant dips.
5 worries for Wednesday's market:
- The Facebook (FB) fiasco continued on Tuesday. The stock dropped another 10% and is also down a few percentages in pre-market trading this morning. This IPO debacle is casting a pall on the social media space, technology in general and puts in doubt the viability/price of the IPOs in the pipeline. It also is hardly good news for investment banks like lead underwriter Morgan Stanley (MS) and their ilk.
- After staging a nice follow up rally for most of Tuesday, the market sold off hard in the last few hours of Tuesday's trading. Given the oversold conditions of the last few weeks, the fact the market cannot muster two good trading days in a row has to be concerning as it is an indicator of current investor sentiment.
- Horrible monthly U.K. retail sales figures today again focus investor attention on the fast deteriorating conditions is Europe and the bite of austerity measures. Retail sales were down 2.3% M/M, much worse than the .8% contraction expected.
- The latest Greek elections are set for June 17th. The elections are being a framed as a referendum of whether Greece stays with the Euro and in the Eurozone. No one can predict the outcome of the election as sentiment shifts almost on a daily basis. This is going to provide a huge headwind to world markets until the election outcome is known. Any result that does not result in a government that has the will to do what is necessary to remain in the Eurozone, is likely to provide huge negative ramifications to the worldwide credit and equity markets.
- Talk of the "Fiscal Cliff" coming Jan 1st, 2013 is escalating. Roger Altman was on CNBC as I wrote this talking again about the 800lb Gorilla in the room. I would look for the market to continue to increase focus on this topic as the impacts to the economy and the markets could be disastrous if not resolved. Unfortunately, given this is an election year; chances of this are slim. Look for this deadlock and the crisis in Europe to be the two major stories for the market into the summer.
Be careful out there.
Disclosure: I am long MSFT.