Yesterday appeared to be the end of the rally, and sadly is was caused by Ben Bernanke talking a neutral book. Investors must remember that it is an election year, and that the US Federal Reserve tries to stay on the sidelines and not get brought into the political fray or appear to be taking sides for those competing in the election. The Fed is most likely on the side of investors, but is afraid to appear on the side of the President as he is running for re-election. He did not say it, but the Fed has to be moving to a more dovish stance, and if they are not there yet they have to be gravitating towards that point.
There is just a bit of economic news out today, as investors have the release of the Trade Balance (Consensus-$49.7 billion) and Wholesale Inventories (Consensus 0.5%) to look for. There is a rumor going around that Spain will ask for money to bailout their banks, but that is just a rumor right now and no names are attached to the story. There is the possibility that the news could break after European markets close and US markets are still trading but whether this would be good or bad news is the question. Truthfully it is hard to say as there have been a few European leaders who have stated that Spain should deal with their banks and not place that burden upon the entire continent.
Looking at Asian markets we see markets are lower:
All Ordinaries - down 1.09%
Shanghai Composite - down 0.51%
Nikkei 225 - down 2.09%
NZSE 50 - down 0.70%
Seoul Composite - down 0.67%
In Europe markets are lower:
CAC 40 - down 0.89%
DAX - down 0.49%
FTSE 100 - down 0.63%
OSE - down 0.68%
Facebook (FB) was down $0.50 (1.86%) on volume of 26 million shares to close at $26.31/share. Investors and analysts alike are bearish of this one and it appears that it is headed lower rather than higher. The stock bounced off of the $26.50/share level all day until it didn't, and this was at the end of the day and caused shares to sell off into the close. Really an ugly chart, but it was not Facebook specific. The company is making some changes to the site in order to enhance the user experience, and some of the minor changes which have popped up should be embraced by users rather than created the usual complaining that ensues when they implement one of the big overhauls (such as the timeline feature).
Sirius XM (SIRI) once again had weak volume as the total number of shares traded yesterday was 36.7 million. The stock was strong all day, but as soon as it broke the $1.90/share level it fell right into the close. We think this had more to do with the market as a whole as opposed to weakness in the company itself. There is still the issue of who will control this company in the future and that is playing out behind the scenes right now. Investors should be hoping that no one is able to take control of the company without paying a premium, but if you cannot get a premium you might as well reward the one guy who saved you from bankruptcy - which appears quite possible.
We have been reading a lot lately about the possibility of a new iPhone coming out in September. We think that this could be big for Sprint (S) as it will have a 4G network with extra capacity in markets where competitors have little wiggle room. Sprint's competitors also no longer offer unlimited data and have begun changing their contract structure to be less attractive to customers, which gives Sprint an advantage here. If the release is in September, that will most certainly be a date to watch. Investors will need to see whether the company is able to get its customers to upgrade, and at the same time bring in new clients from competitors. The shares traded up yesterday by $0.02 (0.74%) to close at $2.74/share.
Navistar (NAV) traded lower by $4.04 (14.35%) to close at $24.11/share. Volume was 23 million shares, which was about 12 times the three month average. The large drop and increase in volume was due to the company adjusting their full year guidance downward. The shares were down hard early and recovered from a low of $20.21/share to a high of $25.94/share before settling down around the $24/share level. It was a volatile day, but for those who bought in the morning they made some decent returns for a few hours of work. The low yesterday marks a new 52-week low for the shares.
Vale (VALE) turned in a good day as shares rose $0.50 (2.67%) to close at $19.25/share. Volume rose to 24.8 million as shares reacted to the rate cut in China. Investors are betting on growth resuming in China, but it was a rate cut and nothing has changed in the 24 hours since. Rather it will be a waiting process which will take time to see the effects of this on the construction industry which is the driver for iron ore consumption. We think that China is gunning for a softer landing, not trying to push numbers up. It is bullish to see shares above $19/share, but we are not sure how long it will last if investors do not see growth resuming higher rates in China.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.