By Carlos Guillen
Stocks are trading significantly lower during today's session as investors evaluate this week's earnings reports and continue to speculate about the timing of Fed tapering actions. While data out of China was encouraging, it was not enough to lift stocks into winning territory, as the Dow Jones Industrial Average is in the red by close to 60 points.
Clearly the most encouraging bit of data out today came from China, as the world's second largest economy had industrial production growth above economists' estimates, adding to signs that nation's economy is stabilizing after unexpectedly strong trade figures just yesterday. According to the National Bureau of Statistics, Chinese factory production increased 9.7 percent on a year-over-year basis, growing at the fastest pace since February of this year. This sharp increase in factory output will certainly bode well for ameliorating investors' confidence that China will not slow economic growth further and will certainly help Chinese leaders meet this year's 7.5 percent expansion target after growth moderated for two consecutive quarters.
Aside from looking at Chinese data today, investors are still attempting to look for clues to get a notion of when the Fed will commence any tapering actions. And this week has been filled with speeches from several Federal Reserve Bank presidents making general comments about the economy. These comments began on Monday with Dallas Fed President Richard Fisher, one of the most vocal critics of quantitative easing, saying the central bank is closer to slowing its $85 billion per month bond buying program and warning investors not to rely on that stimulus.
Then on Tuesday comments from Federal Reserve Bank of Atlanta President Dennis Lockhart exacerbated Fed tapering talk as he told Market News International that the Fed could start curtailing its bond-buying program at any of the three remaining Federal Open Market Committee meetings this year. Shortly after, Chicago Fed President Charles Evans, who is particularly dovish, said the bond-buying program is likely to be scaled back this year.
Then on Wednesday Cleveland Fed Bank President Sandra Pianalto, a long-time supporter of easy-money policies, added her voice to the "sooner rather than later" crowd. According to Sandra, employment growth has been stronger than she was expecting. And in light of this progress, and if the labor market remains on the stronger path than it has followed since last fall, Sandra would be prepared to scale back the monthly pace of asset purchases.
It should be noted, however, that Fed officials have emphasized that tapering does not mean tightening, and the Fed's short-term interest rates are likely to remain low until the unemployment rate drops substantially.
On the earnings front, Priceline.com Inc. was a bright spot today as its shares jumped 5.0 percent a day after the online-travel business reported a 24 percent increase in second quarter earnings, with sales growth driven by its hotel and rental car businesses.
In all, stocks are showing signs of a recovery from earlier losses; however, trading volumes are light, which means that the volatility that we saw yesterday will continue today, and even ending the session in the green is certainly in play.
Drifting on Autopilot
By David Urani
Sometimes the market reacts because something big happened, and other times when there isn't so much going on it can drift in a pattern of its own. The last four sessions have been eerily similar. Each day we've been greeted by an early selloff shortly after the opening bell, followed by a bounce right around 11:00.
Perhaps it's the big banks trying to shake out nervous investors at the open, to buy back on the dip. Or perhaps it has something to do with the Fed's daily injections of QE through POMO operations that begin in the morning and close incidentally at 11:00. Is the market giving the Fed a message that it's going to go into selloff mode until it gets its fix of QE funny money addiction? Or there could simply be no reason at all, with computer trading algorithms set in autopilot until some notable news hits the wires.
S&P 500 - 5 Day
Whatever the case, these 11:00 bounces have largely been head-fakes so far. The market has still ended negative each day, aside from yesterday (just slightly) when it was only met with another selloff this morning. That said, it smells like an orderly shakeout by the Street, taking advantage of the lazy summer session to pull stocks into discount territory only to buy back later.
We don't fear a shakeout, and almost welcome a bit of a market dip; there are a lot of strong names out there that just reported big time earnings this week or last, and are currently being sucked down to a cheaper price that we can buy on weakness.