Daily State of the Markets
Good morning. I am of the mind that at least a portion of the market's recent sloppy period can be attributed to the fact that there has been a rather large void in terms of data inputs of late. In short, the economic calendar has been fairly empty and the earnings parade doesn't really start to roll until next week (although we will get reports from Google, JB Hunt Transport, Bank of America, and Infosys before the weekend). As such, we really can't blame the-sky-is-falling crowd for trying to get something going to the downside lately.
My perma-bear buddies are becoming giddy with excitement as they haven't had their heads handed to them on a platter in almost two weeks. Yes fans, it's been ten days since we've seen any meaningful green on the screens. But while the action has begun to take on a rather ugly feel of late and the bears are suggesting (rather loudly, I might add) that a collapse is imminent, we should keep in mind that (a) this is an options expiration week and (b) the S&P has only given back -1.58% during this less-than inspiring two-week phase.
Yes, I am well aware of the fact that the energy/commodity space has been taken out behind the woodshed and beaten with a stick. However, as is often the case these days, traders may have gotten a little ahead of themselves on this "trade" as even the Energy Select SPDR (NYSEARCA:XLE) had soared +57% from September 1 through last Tuesday (and is still up +48.5% on the move as of yesterday's close). Therefore, a pullback of -5.3% is hardly anything to get overly concerned about at this stage of the game.
Yes, I am also aware of the fact that Greek bond yields and CDS spreads are soaring, and the rest of the PIGI'S are also in bad shape. And yes, I too saw the survey on CNBC showing that 53% of consumers say that their spending habits are already being affected by higher oil prices. Oh, and I also "get" that higher commodity costs may indeed affect profit margins. However, to this point none of the above have had an impact on the U.S. economic recovery or earnings in general. And I suppose this is the primary reason that after ten days of rather bearish behavior, stocks have given back less than 2%.
The key point this morning is that I'm guessing that the buyers may indeed return to the game once the earnings parade starts to roll and the economic data confirms that the economy didn't stop on a dime in response to the triple tragedies in Japan. In short, I'll suggest that the primary driver to the sloppy action we've seen over the last two weeks has been a lack of data inputs and that once the data begins to flow, there might just be some good news in there somewhere.
Could I be wrong on this? You betcha - and it wouldn't be the first time my glass-is-half-full mentality has been off base. However, it is important to recognize that I have risk management systems in place to guide my exposure to the market and if things actually do break down and get ugly, we won't hesitate to say, "Hey, we misread that one - We're outta here."
The key here is that while I do have an opinion and I try my darndest to stay neutral and emotion-free in trying to determine the drivers of the market action, it is vital in this business to have systems in place to keep you in tune with what IS happening in the market (as opposed to what you think "ought" to be happening). So, for now, I'm sticking with the view that it has been a lack of inputs and a profit-taking call on the commodity trade that has driven the recent sloppy period. But going forward, I'll be sure to keep my eyes open, my emotions in check, and my indicators/systems close at hand.
Turning to this morning... The bears are back at it pointing to Greece and the rest of peripheral Europe as potential problems. Stock futures are currently pointing to a lower open.
On the Economic front... The Labor Department reported the Producer Price Index (an indication of inflation at the wholesale level) for March rose by +0.7%, which was below the consensus estimate for +0.9% and February’s +1.6%. When you strip out food and energy, the so-called Core PPI came in up +0.3%, which a tenth above the consensus for +0.2% and below February’s +0.2%.
Next up, Initial Claims for Unemployment Insurance for the week ending 4/9 rose by 27K to 412K. This was well above the consensus estimate for 383K and last week’s upwardly revised total of 385K. Continuing Claims for the week ending 4/2 came in at 3.68M vs. 3.700M and last week’s 3.738M.
Thought for the day: Try embracing an "attitude of gratitude" today...
Here are the Pre-Market indicators we review each morning before the opening bell...
Wall Street Research Summary