Halfway through the trading day, and the market is staging an impressive Friday 13th rally after six straight days of losses. I am using the rally to shed some winning positions I picked up earlier in the week, especially in some of my biotech stocks that have soared this week. I believe we are in a volatile market environment where you need to sell the rips/buy the dips until visibility around Europe and worldwide growth improves. Despite today's rally, there are plenty of data points to be concerned about heading into the weekend.
10 worries for the weekend:
- The May inventory report showed a .3% increase in inventories. Durable good inventory increased by .6%. Another warning sign about end user demand especially for higher value goods.
- Speaking of a slowdown in industrial demand, Boeing (BA) received about 50% less orders at the Farnborough International Airshow that just completed.
- European Auto manufacturing is in a shambles, operating at 76% of capacity as economic growth is contracted. This was the major reason for the disappointing earnings from Ford (F) recently and the reason Peugeot just announced it would close the first auto plant in France in two decades.
- The weakening economies of Europe and the United States are starting to have ripple impacts. South Korea just announced a surprise rate cut as their growth slows faster than expected and China just posted the lowest quarterly GDP growth in three years.
- The breaking Libor scandal and the collapse at Peregrine Financial do not bode well for investor confidence in the financial system or in regulators.
- The U.S. Ten Year Treasury yield is at 1.5% and the Swiss Two Year is at a negative 43 basis points……not exactly a vote of confidence in the overall world economy or markets.
- Lexmark (LXK) became the latest tech hardware firm to revise its financial guidance down this week. The slowdown in tech spending has to be a major concern right now in the market.
- Earnings season starts in full next week. S&P earnings are expected to fall in the quarter for the first time in three years. Given Warren Buffett's comments on CNBC yesterday about the abrupt slowdown in some of his businesses have hit in last month or so, I would look for a lot of very cautious guidance by firms reporting earnings. Not a backdrop for a vigorous rally.
- Spain is heading into a depression even without the latest austerity measures. Unemployment is near 25% and the economy is dormant. Great piece in the Wall Street Journal about the extent of the slowdown and misery in that country today.
- If Italy was not enough of a mess, Silvio Berlusconi is plotting a return to power.