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David Moenning is a the proprietor of StateoftheMarkets.com. In addition to providing free and subscription-based portfolios on "State", Dave is a full-time money manager and the President and Chief Investment Strategist of a Chicago-based Registered Investment Advisory firm. Dave... More
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Daily State of the Markets
  • What Did We Learn? 0 comments
    Jun 29, 2012 8:45 AM

    Daily State of the Markets
    Friday, June 29, 2012

    Good morning. To be sure, the market has been a roller coaster ride full of news, rumors, comments, and headlines lately. And as someone who watched nearly every minute of the action over the past week, I can say that most of the moves made sense (although one in particular yesterday did not). But the point is that sometimes you can learn something from the action itself and after some reflection yesterday was definitely one of those times. Cutting to the chase, I'm of the mind that yesterday's action taught us that while there are indeed lots of distractions right now in the market, it's still all about Europe.

    The first important move occurred in the pre-market. Futures had followed Europe lower as traders began to fear that yet another EU summit would come and go without any real progress being made. Then all of a sudden there were reports that Germany's finance minister Wolfgang Schäuble had given indications that Berlin might be willing to talk about Euro bonds. Although it turns out that Her Schäuble's words had been misinterpreted (Germany still demands that a fiscal union must be agreed to before any discussion of joint debt can be considered), it was worth noting that the S&P futures spiked on the news. This told me that even the slightest hint of a change on Germany's stance was worth about 0.5% on the S&P futures.

    Next up, and still before the opening bell rang, was the final revision to U.S. GDP. Since the idea of slowing global growth has been a focal point of late, I felt that this would be a closely watched number. But when the U.S. GDP rate was confirmed at +1.9% for the first quarter there was very little reaction to the news. Thus, it was clear that this data was already "baked in" as the report didn't offer anything incremental to the global macro picture.

    Then there was SCOTUS (Supreme Court of the United States). Most everyone was expecting at least some part of the Obamacare legislation to be struck down by the land's highest court. However, this was not the case and in a 5-4 vote, the law mandating that every individual in the U.S. buy health insurance was upheld. (As a quick aside, although the decision was considered to be a victory for the President, the reasoning behind the SCOTUS verdict meant that Obama had just passed the largest "tax" in history on U.S. citizens.) Surprisingly though, the stock market did not experience the sort of knee-jerk volatility that one might have expected from such a monumental decision. What this told me was that the algorithms and the computers were not ready for that particular verdict.

    However, Wall Street traders are nothing if not adaptable. So, it wasn't terribly surprising to see stocks sell off in earnest over the ensuing half hour. It became clear to me that SCOTUS was worth about 9 S&P points. The thinking here was fairly straightforward as the Obamacare legislation meant more costs and according to many analysts, would likely continue to be a detriment to both job and economic growth. We also learned that there were some winners of course such as HCA Holdings (NYSE:HCA) and Amerigroup (AGP) and some losers that included the likes of Wellpoint (WLP) and Aetna (NYSE:AET).

    As is usually the case after a "big bad event" stocks then settled down as some "real" market action took hold. It looked to me that the SCOTUS ruling was a modest negative and that the bull case had taken a pretty serious hit. In turn, the S&P faded to the low of the day and the Dow was off nearly 180 points with 90 minutes left in the session.

    But soon afterwards the fun started. While stocks had worked their way off the bottom on word that the EU leaders were making some headway on the idea of the bailout funds (the EFSF and ESM) being able to buy the bonds of Italy and Spain directly, things really got moving with just over 30 minutes left in the session.

    At precisely 3:28 pm eastern time a massive buy program hit. There was no new headline, no big EU announcement, not even a rumor - only word that Angela Merkel had cancelled a press conference. Although even the Twittersphere was strangely quiet during the move, the thinking in the market was that either (a) somebody knew something or (b) Merkel must be working on something big to cancel her press meeting.

    The response by the indices made the rest of the day look tame as the S&P shot up 10 points in less than 10 minutes. The move was both confounding and relentless. Some opined that it must have been a "fat finger" error while others insisted that something was up across the pond (in hindsight, we did learn that EU leaders later announced an agreement on some growth spending and that there is talk of bond buying via the ESM/EFSF). But in any event, the lesson here was clear - Europe is still what matters most to the market right now.

    Turning to this morning... It remains all about Europe this morning as stock markets around the globe are ripping higher on the agreement out of the EU Summit to (a) create a single banking supervisor, (b) use existing bailout funds to buy bonds and recapitalize banks, and (c) set aside funds for growth initiatives.

    On the Economic front... Personal Incomes rose by +0.2% in May, which was in line with the consensus expectations for an increase of +0.2%. Personal Spending for the month was unchanged, which was in line with the expectations for +0.0% but below April's +0.3%.

    We'll also get Chicago PMI at 9:45 and UofM's Sentiment at 9:55 am.

    Thought for the day... There's none so deaf as those who will not hear. -English Proverb

    Pre-Game Indicators

    Here are the Pre-Market indicators we review each morning before the opening bell...

    • Major Foreign Markets:
      • Australia: +1.22%
      • Shanghai: +1.35%
      • Hong Kong: +2.19%
      • Japan: +1.50%
      • France: +2.71%
      • Germany: +2.56%
      • Italy: NA
      • Spain: +2.56%
      • London: +1.43%
    • Crude Oil Futures: +$2.78 to $80.47
    • Gold: +$29.60 to $1580.00
    • Dollar: lower against the yen, euro, and pound
    • 10-Year Bond Yield: Currently trading at 1.561%
    • Stock Futures Ahead of Open in U.S. (relative to fair value):
      • S&P 500: +21.11
      • Dow Jones Industrial Average: +165
      • NASDAQ Composite: +40.75

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave

    For more of Mr. Moenning's thoughts and research, visit StateoftheMarkets.com


    The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

    Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

    The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

    The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (NASDAQ:HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

    Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

    Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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