Good morning. After it became clear that the Mario Draghi was not going to let the eurozone implode this summer and that the U.S. economy was not going to plunge into recession, investors began to look ahead. And what they saw wasn't half bad. They saw corporate America with a boatload of cash and decent earnings. They saw the housing market starting to show signs of improvement. They saw the consumer starting to regain some confidence. And they saw Ben Bernanke readying his printing press again. So, is it any wonder that the major indices hit new bull-market highs in mid-September?
However, since then things have gotten a little sloppy. And in some areas such as big-cap tech, things have gotten a lot sloppy. No scratch that, a quick glance at the NASDAQ Composite or the semiconductor index reveals that things have gotten downright u-g-l-y there. For those of you keeping score at home, the semiconductor index has dropped -10.3% from its summer high point and the NASDAQ has given back -6.07% since 9/14, while the S&P is off -3.6% as of yesterday's close.
The problem is simple as the environment has changed. Optimism about the future is out and the worries have returned. Tuesday was a perfect example of this as the DJIA was shellacked for a loss of 243 points - without the benefit of that big headline or data point that the bears love to capitalize on. Sure, there were some pretty crummy earnings reports from the likes of DuPont (DD) and United Parcel (UPS). And yes, the futures did react negatively when these numbers came in below expectations. But from my perch, it was clear that Tuesday was all about the worry of what might happen next.
It started with the debate. Although the average American (myself included) really isn't qualified to comment or even comprehend much of this nation's foreign policies, the President made a point to talk about "sequestrations" and his quest to raise taxes. And with Mr. Obama not falling on his face this time, the debate brought out worries about the 'Fiscal Cliff' as well as the potential for increases in the tax rates on incomes, capital gains, and dividends. The bottom line here is if you want people to sell stocks, just tell them that they can get a break on their taxes by doing it now instead of next year.
Next up, Moody's realized that there was something that they had not yet downgraded and got straight to work. The ratings agency cut the credit rating on five of Spain's regions. While this may cause you to roll your eyes or perhaps yawn in response, the key is that this, along with the renewed bickering between what is now being referred to as "Merde" (As a quick sidebar, first there was Merkozy, then Merkollande, and now just "Merde." And in case you don't remember your high school french, type the word into Google and you may get a giggle or two out of the shortcut to the names of the leaders of Germany and France.) has caused some investors to worry that the Euro-mess could reignite at any time if rates start rising in Spain. Oh wait ...
This brings us back to Tuesday's earnings releases. After watching the current parade of corporate reports, the question that comes to mind is if any company in the U.S. is ever going to exceed revenue estimates again. And if you want something to create more worry regarding the outlook for future earnings, weakening revenue growth is your ticket.
And finally, we have the report that, according to some of his close friends, Ben Bernanke is growing tired of mounting up his trusted white steed and saving America's hind quarters every other year or so. As such, it looks like "Gentle Ben" isn't interested in sticking around when his term expires in January 2014. This, of course, creates the worry about what will happen to the economy if someone at the Fed isn't keeping rates at all-time lows or dropping money out of a helicopter.
So there you have it; a potpourri of worries, if you will. Worries ranging from Spain, to the election, to earnings, to economic growth, and now... even to the Fed. Ughh. It's enough to make even us optimistic sorts start buying some SH, SDS, and/or SPXU.
Turning to this morning ... The economic data overnight was mixed as China's Flash PMI was better than expected while Europe's were below consensus expectations. However, the earnings parade has shown some bright spots as the reports from both Facebook and Boeing were well received. As a result, stock futures in the U.S. are pointing to a rebound at the open.
On the Economic front ... We will get the reports on Flash PMI in the U.S., New Home Sales, and FHFA Housing this morning. And lest we forget, the FOMC announcement is due out at 2:15 pm today.
Major Foreign Markets:
- Shanghai: +0.07%
- Hong Kong: +0.31%
- Japan: -0.67%
- France: +0.46%
- Germany: +0.21%
- Italy: +0.33%
- Spain: +0.34%
- London: +0.14%
- Crude Oil Futures: +$0.12 to $86.79
- Gold: -$0.50 to $1709.00
- Dollar: lower against the yen and euro, higher vs. pound
- 10-Year Bond Yield: Currently trading at 1.771%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +3.39
- Dow Jones Industrial Average: +39
- NASDAQ Composite: +8.38