Daily State of the Markets
Tuesday Morning – June 29, 2010
Good morning. Coming into yesterday's session, it was fairly easy to be optimistic about the prospects for a rally in the stock market. The indices were oversold. Negative sentiment was so thick you could cut it with a knife. Stocks across the pond were up more than 1%. There appeared to be some support developing on the charts in the near-term. Thus, it was reasonable to expect that managers might try to dress up their portfolios just a bit into the end of the quarter. And with overhead resistance a ways off, a little jaunt to the upside certainly made sense.
Why then did stocks do next-to nothing on Monday? Why the modest decline instead of the bounce that just about everyone was looking for? While there are still lots of issues to focus on and there was a fair amount of data to sift through on Monday, from my perch, it appears that the bond market is telling the whole story here. And the main story line continues to be about fear and uncertainty.
Lots of fast-money trader types like to focus on the VIX. And while the so-called "fear index" may help short-term traders with their decisions, I prefer to watch the action in the bond market. Unlike stocks, which have any number of issues the must be factored into the pricing, the bond market is a much more straightforward game. Economic weakness and/or fear means higher prices/lower yields while economic strength/optimism/and/or inflation all mean lower prices/higher yields.
So, while stocks bounced around yesterday and it was surprising that the U.S. indices did not follow their European brethren higher for a change, the bigger surprise was the action in the bond market. Although it got very little press, the yield on the 10-year dove, flirted with the 3% level, and finished at its lowest level yesterday since late April 2009.
Sure, there were other data points to consider yesterday. The death of Senator Byrd puts political drama and uncertainty back into the game in terms of passing the FinReg bill this week. The Personal Income and Spending report and the Chicago Fed National Activity Index both appeared to confirm the "slow growth" theme. And then the Dallas Fed Manufacturing Index took a tumble in June. But unfortunately, none of the above seemed to explain the gap down in bond yields and the 10-year finishing at 3.03%.
Thus, we will opine that the fear and loathing that has dominated the market over the past two months hasn't gone away. And while we may still see some lipstick applied to this quarter-end numbers, we remain a little concerned about the action in the bond market.
Turning to this morning... Fears over global growth (as well as the bond market) are back in focus this morning after the Conference Board in China said that their latest economic indicators contained a "calculation error" which meant that the Chinese economy grew just +0.3% in April instead of the +1.7% that had been previously reported. Oops...
Here at home, we don't have any economic data to review before the bell, but we will the Case/Shiller Home Price Index at 9:00 am and June Consumer Confidence at 10:00 am eastern.
Finally, remember to think positive today...
Here are the important indicators we review each morning before the opening bell...
Major Foreign Markets:
- Australia: -0.89%
- Shanghai: -4.27%
- Hong Kong: -2.31%
- Japan: -1.27%
- France: -2.71%
- Germany: -2.15%
- London: -2.20%
Crude Oil Futures: - $1.80 to $76.45
Gold: - $3.10 to $1235.50
Dollar: Higher against Yen, Euro and Pound
10-Year Bond Yield: Currently trading lower at 2.99%
Stocks Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: -15.98
- Dow Jones Industrial Average: -111
- NASDAQ Composite: -28.40
Wall Street Research Summary
- Ameriprise Financial (NYSE:AMP) - Citi
- Noble Corp (NYSE:NE) - FBR Capital
- Walt Disney (NYSE:DIS) - Goldman Sachs
- News Corp (NASDAQ:NWSA) - Goldman Sachs
- Zimmer Holdings (ZMH) - Goldman Sachs
- Lennar (NYSE:LEN) - Keffe, Bruyette & Woods
- BlackRock (NYSE:BLK) - Keffe, Bruyette & Woods
- Waddell & Reed (NYSE:WDR) - Keffe, Bruyette & Woods
- Jabil Circuits (NYSE:JBL) - Thomas Weisel
- Ryland (NYSE:RYL) - UBS
- US Bancorp (NYSE:USB) - UBS
- Regions Financial (NYSE:RF) - UBS
- Vodafone (NASDAQ:VOD) - Credit Suisse
- Time Warner (NYSE:TWX) - Goldman Sachs
- Covidien (COV) - Goldman Sachs
- Viacom (VIA.B) - Goldman Sachs
- Janus Capital (NYSE:JNS) - Keffe, Bruyette & Woods
- Genworth Financial (NYSE:GNW) - Morgan Stanley
Long positions in stocks mentioned: NE
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