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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • GDP Got You Down? - By Jennifer Coombs

    The trading session has been one big long, slow crawl to get back into positive territory as the major equity indices attempt to close out the last trading session of May 2015 better than last month. Stocks opened in the red and dropped lower after it was noted that the Q1-2015 gross domestic product (NYSE:GDP) revision was well below the initial reading. In the first quarter, the US economy contracted by 0.7%, revised from a previously reported 0.2% gain. It is the first contraction in a year as harsh winter weather, a strong dollar and delays at ports hurt the economy. However, the market made a big reversal off session lows after it was reported that Greece will in fact be making its June 5th payment to the International Monetary Fund (NYSE:IMF). The NASDAQ is gaining the most ground today, and remains the strongest of the three major indices in 2015.

    Aside from the disappointing GDP number, there were two other economic reports impacting the market today, although neither was strong enough to help make up lost ground. The Chicago purchasing managers index (PMI), which tracks all sectors of the Chicago economy, confirmed what the Fed district reports already noted in May - business activity in the major metro areas is still very weak. The report noted a surprising and inexplicable contraction to a reading of 46.2 which was far below the consensus estimate of 51.0 and the April reading of 52.3. All five of the index's subcomponents came in below the 50-breakeven level, with the steepest declines in new orders, production and also employment, which is at its lowest level since April 2013. However, raw material prices made a recovery, but this is likely the fault of rising gas prices over the month of May. Given the volatile history of the Chicago PMI, it's difficult to draw any definitive conclusions. However, this report is a red flag of some sorts, especially when economists were looking for this report to show some significant strength, not weakness.

    Despite this morning's disappointing GDP reading, consumer sentiment has made an impressive recovery in the last two weeks. The University of Michigan's Consumer Sentiment Index rose to 90.7 from the mid-month flash reading of 88.6. For the last two weeks the implied reading is about 93, which although down from April's 95.9 and January's peak over 98, is still very solid. Nevertheless, there is still weakness on a month-to-month basis, and this doesn't bode well for the consumer spending report for May. The current conditions component rounds out the month at a reading of 100.8, which is strong, but well below the 107.0 reading from April. This points to trouble for the May employment data. Additionally, there was a decline in the expectations component to 84.2 from 88.8 in April, which points to lower optimism for the long-term jobs outlook. Gas prices are up more than 5.0% from April with is also putting pressure on inflation expectations going into the summer. One-year expectations are up from April to 2.8%, as are 5-year expectations which show the same readings. Ultimately, the consumer reports in the week of May 25th are pointing to stability in consumer sprits. However, the optimism peaked big-time in January, but is now leveling out.

    May 29 3:43 PM | Link | Comment!
  • What's Eating China, Is Eating Us By Jennifer Coombs

    Yesterday's optimism was short-lived as the major US equity markets opened lower amid a slew of conflicting data. Firstly, Chinese-based equities listed on US exchanges are lower today after the Shanghai Composite Index took a run at the 5,000-mark during today's session in Asia, but then failed miserably. This resulted in the Chinese stock market closing down by 6.5% for the biggest drop since January 2015. Additionally, initial US jobless claims increased by 7,000 in the week of May 23rd, but at 282,000, this is still quite low, as is the 4-week average which rose 5,000 to 271,500 and is trending about 10,000 lower than the-month ago comparison. Continuing jobless claims, increased by 11,000 in week of May 16th, and are also very low at 2.222 million.

    While the major equity indices are being dragged lower by broader macro data, there was another big check mark in favor of the housing sector. Pending home sales have consistently sent the most positive signal of any housing sector indictor. Up for the fourth month in a row, pending home sales increased by a very high 3.4% in April from an upwardly revised 1.2% (from 1.1%) in March. In particular, monthly gains were concentrated in the Northeast and Midwest regions, with the South and the West up slightly from the prior month. Below is a chart of the national and regional changes in the index over the past few months.

    Pending home sales are up 14.0% over last year, which is a far ahead of the final sales of existing homes, up only about 6.1% over last year. It's clear that issues involving consumer credit for closings don't appear to be of major concern in the housing sector right now, and are probably not obstacles for gains in final sales. Overall it's clear that reports on the housing sector are mixed, but some reports, especially this one, are extremely positive for the sector going into the summer selling season.

    May 28 1:33 PM | Link | Comment!
  • Mergers Are The New CAPEX By Charles Payne

    Watch my show: Making Money With Charles Payne Fox Business 6PM

    There are certain market trends that have developed during this bull market, including seasonal periods of weakness and strength. The question is, seeing a high probability of weakness into the end of next month, should investors ride it out or cool their heels on the sidelines. However, I think you have to ride them out if you want to be an "investor." This chart from iSPYETF underscores how blinking during lulls and occasional pullbacks have cost many "investors" a lot of money. Sure, when you become spoiled, a few weeks drifting might feel like the end of the world. However, it's another chance to get in, not out.

    The NASDAQ closed at a record level and it's breaking through a double top technical formation, which is usually a huge buy signal. If I had to quibble, I would have liked more volume, but the move was impressive, nonetheless.

    The action was paced by Avago and Broadcom, an old tech survivor that will probably be gobbled up by this former unit of Hewlett Packard. These deals are absolutely amazing, sending both the acquirer and target soaring. Some will gripe this is all the work of the Federal Reserve. There's no doubt zero percent interest rates make deals more enticing. I think there's more to it, however. I see these deals as the new capital expenditures (MUTF:CAPEX) and shortcut for research and development.

    However, capital expenditures have suffered as buybacks and dividend payouts are now on pace to cross $1,000,000,000,000 (one trillion), so why not make it up via mergers.

    Today's Session

    Initial jobless claims are on the rise as we get closer to the end of the month. For the week ended May 23rd, claims rose to 282,000 from an upwardly revised 275,000 (from 274,000) in the prior week. Nevertheless, this value can still be considered low when compared to the same week last year. The 4-week average for initial gains also rose slightly to 271,500, but is 10,000 lower than the 4-week average from a month ago. Claims increasing on a weekly basis for the month of May could potentially result in a disappointing employment report.

    May 28 9:29 AM | Link | Comment!
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