Daily State of the Markets
Monday Morning – November 8, 2010
Good morning. Let's see here... QE II was a bit more robust than expected, the election results suggest that the environment ought to be a little less hostile for business, and the economic data - including the all-important jobs report - has been coming in largely above consensus lately. This combination put traders back in a "risk on" mode last week, which pushed the dollar and interest rates lower and just about everything else you can think of higher. Thus, with the backdrop seemingly quite positive and the "most wonderful time of the year" upon us, the question of the day is if the bulls can be stopped between now and the end of the year.
Okay, I will admit that this question is being asked with my tongue firmly implanted in cheek. However, we are beginning to hear a bullish chorus from just about every corner these days. And the bottom line is that while the idea of further advances from here without some sort of a pause or pullback would seem counterintuitive, we must remember that once a melt-up gets started, it can be tough to stop.
For example, while all eyes were on Bernanke & Co. last week, CDS spreads in places like Portugal and Ireland either hit or came close to all-time highs. This means that the folks pricing these esoteric securities see trouble ahead in at least a couple of the PIGI'S. But apparently this is yesterday's news (as in the April-June period) as traders simply don't give a hoot about what is happening with sovereign debt these days.
No, the current euphoria in the market is based on the idea/hope that the latest round of FOMC bond buying is going to get the economy back on track. While a fair amount of economists have publically stated that QE II is unlikely to impact employment, is likely to be inflationary, is problematic from a budget standpoint, and is ruffling the feathers of some of our global neighbors (who, by the way, we depend on to buy our bonds), traders have obviously donned their rose-colored Revo's at the present time.
It doesn't hurt that Friday's jobs report came in well above expectations and reversed a five-month slide as Nonfarm Payrolls expanded for the first time since April. The bulls were quick to point out that the private sector showed an increase of 159K jobs, with was more than 50% above even the most optimistic street forecasts. And while this report doesn't change anything from the Fed's perspective, a few more reports like this one could cause the new Fed to rethink their stimulative ways. (For the record, three inflation hawks who are vocally against QE join the FOMC as voting members in 2011.)
From a chart standpoint, it appears that the only hope the bear camp has in keeping their opponents from simply running them over between now and the end of the year lies in the 1240 zone. This area represents the lows seen in June of both 2008 and 2007. And while this joyride to the upside may not be bothered with such trivial things, it is worth nothing that there is some resistance overhead above 1250.
Getting back to the question posed in this morning's title, we have little doubt that the bears will find some tidbit of data or headline to grasp onto for a while in the next few days. But, we will also bet that unless something fundamental crops up, the dips will be bought by those managers experiencing some anxiety relating to their YTD performance. Thus, the question is likely to be answered during the dips - assuming there are any, of course!
Turning to this morning... Stock futures are moving a little lower in the early going on the back of a rise in the greenback and sagging European markets.
On the economic front... There is no economic data scheduled for release today.
Finally, remember that it pays to be open minded (in more ways than one)...
Here are the important indicators we review each morning before the opening bell...
Major Foreign Markets:
- Australia: -0.36%
- Shanghai: +0.96%
- Hong Kong: +0.35%
- Japan: +1.11%
- France: -0.18%
- Germany: -0.17%
- London: -0.37%
Crude Oil Futures: - $0.41 to $86.44
Gold: - $5.90 to $1381.80
Dollar: higher against the Yen, Euro and Pound
10-Year Bond Yield: Currently trading at 2.543%
Stocks Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: -4.35
- Dow Jones Industrial Average: -43
- NASDAQ Composite: -3.66
|Earnings Before The Bell |
* Report includes items that make comparisons to the consensus estimate questionable
Wall Street Research Summary
- Estee Lauder (NYSE:EL) - Barclays
- EOG Resources (NYSE:EOG) - JPMorgan
- Savient Pharmaceuticals (NASDAQ:SVNT) - Soleil Securities
- Hewlett-Packard (NYSE:HPQ) - Mentioned positively at UBS
- Maxim Integrated (NASDAQ:MXIM) - UBS
- Intel (NASDAQ:INTC) - UBS
- MetroPCS (PCS) - Wells Fargo
- Coventry Health Care (CVH) - Wells Fargo
- SL Green (NYSE:SLG) - BofA/Merrill
- Photronics (NASDAQ:PLAB) - BofA/Merrill
- Avon Products (NYSE:AVP) - Barclays
- Buckeye Technologies (NYSE:BKI) - Credit Suisse
- Advance Auto Parts (NYSE:AAP) - FBR Capital
- Macerich (NYSE:MAC) - Jefferies
- Alliant Techsystems (ATK) - JPMorgan
- TJX Companies (NYSE:TJX) - Soleil Securities
- DISH Network (NASDAQ:DISH) - UBS
Long positions in stocks mentioned: EL
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