Good Morning. Although this market can turn on a dime (or in this case a headline or rumor), I will admit that the bulls deserve some credit after Wednesday's effort. In short, with the holiday season underway and Tuesday's big blast creating an overbought condition, short-term profits were ripe for the picking. So, after Oracle's report stunk up the joint and traders began to "sell the news" that European banks had indeed borrowed a boatload of euros from the ECB, it wasn't exactly surprising to see stocks take a hit yesterday morning.
It also wasn't a total shock to see things start to get downright ugly (especially in four-letterland) during the lunch hour. Tech was being obliterated (Oracle was down -13.6%) and as a result, the chart of the NASDAQ was looking more than a little iffy. To be honest, at that point in the day, it felt like the bears were about to really get rolling again.
However, it was our actually our furry friends that wound up going home disappointed on Wednesday as the buyers returned and there was word of a reindeer seighting at the corner of Broad and Wall. Thus, we can say that traders were able to ignore the miserable showing in the technology as well as the fears that the 'backdoor bazooka might wind up being a pea shooter and focus instead on the traditional Santa Claus markup period.
Speaking of things being ignored by the markets, traders appear to be putting aside a host of other issues that have been staples in the bear argument recently. From a short-term perspective, the move from red to green yesterday meant that the widening spreads on Italian and Spanish bonds, which had been all the talk in the early going, was being tossed aside. Also ignored so far this week is the renewed bickering in Washington over issues that aren't likely to have much of an impact on the economy anyway. And finally, traders have completely and utterly ignored the story that a major hedge fund/bondholder walked out of talks with Greece this week. (Apparently the fund isn't wild about taking any further writedowns.)
To readers of the market's tea leaves, this is clearly a bullish development. So, the fact that the bulls have been able to shift the dialogue from negativity to hope has to be considered a positive. How long this new upbeat attitude will last in this news-driven environment however is obviously anybody's guess. As I've said a time or twenty over the past few years, things don't matter to the stock market until they do - and then they matter a lot.
While I am quite reticent to play an Ebenezer Scrooge role at this point during the holiday season, we do have to keep mind that the macro view isn't exactly a pretty picture right now and that the current drive to the upside could easily fizzle - especially as the big hedge funds get back to work in the New Year.
So under the category of being prepared, let's review the major points being bandied about by the bear camp these days. First and foremost is the idea that you can't solve a debt crisis with more debt. Next, there the fact that the Germans are not looking for a "fix" to the sovereign debt crisis and appear to be saying "nein" to any and all new ideas. Then there is the fact that Italy has officially entered a recession and that the rest of the Eurozone (save Germany perhaps) is likely to soon follow suit. On that note, there is the slowdown that is occurring in China (this fact is definitely not lost on the Shanghai stock market index or other Asian markets for that matter). There are the increasing capital requirements for banks that as history has shown, tends to put a big crimp in lending. And finally, there is the fact that money markets in Europe are all but frozen at the present time and are unlikely to improve anytime soon given the lack of confidence in the region's banks.
But for now, it appears that all of the above is being ignored and that Santa and his reindeer are showing up right on schedule. And with the S&P just a buy program away from being green on the year, we wouldn't be too surprised to see the traders that are still at their desks continue to ignore the bad stuff for the next few days.
Turning to this morning ... Santa is making an appearance across the pond as the European markets are all up more than 1% at this hour and the futures in the U.S. are also pointing higher in the early going. But there is a large slate of data to sift through before the opening bell rings.
On the Economic front ... The government’s second revision to the nation’s third quarter GDP shows the economy grew at a rate of +1.8% during the July-September period. This was below the estimates for a growth rate of +2.0% and the rate of +2.0% from the last revision, but still above the second quarter’s growth rate of +1.3%.
Next up, Initial Claims for Unemployment Insurance for the week ending 12/17 fell by 4,000 to 364K, which was below the consensus for 378K. Continuing Claims for the week ending 12/10 came in at 3.546M vs. consensus of 3.625M and last week’s 3.603M.
Major Foreign Markets:
- Australia: -1.15%
- Shanghai: -0.23%
- Hong Kong: -0.21%
- Japan: -0.75%
- France: +1.49%
- Germany: +1.20%
- Italy: +1.49%
- Spain: +0.88%
- London: +1.22%
- Australia: -1.15%
Crude Oil Futures: +$0.49 to $99.16
Gold: -$1.10 to $1612.50
Dollar: lower against the yen and pound, higher vs. euro
10-Year Bond Yield: Currently trading at 1.944%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +2.88
- Dow Jones Industrial Average: +24
- NASDAQ Composite: +2.37
- S&P 500: +2.88