Daily State of the Markets
Wednesday Morning – October 6, 2010
Good morning. Yesterday, we opined that sometimes it's the little things that matter most to the market. However, Tuesday's action proved conclusively that a couple big positives easily trump even a handful of minor league negatives. It also helps when the big things are big-picture oriented, which was most definitely the case yesterday, as reassurances from a big central bank went hand in hand with a report showing that a big chunk of the U.S. economy is moving forward.
The fun started in the wee hours when the Bank of Japan announced that they've seen just about enough of the steady-as-she-goes approach and decided to get aggressive. The Japanese central bank first cut interest rates, which was largely a symbolic gesture since rates were already at 0.1%. But then they did the unexpected by announcing a 5 trillion yen fund designed to do some quantitative easing of their own. And unlike the plans here in the U.S. and the UK, where central bankers focus on buying up government bonds, the Japanese took it up a notch by announcing they would be buying commercial paper, corporate bonds as well as REIT's and ETF's.
This new twist to the QE game put the fun back in fundamental thinking as it occurred to traders that if the Japanese were going to buy up stuff besides those boring government bonds, then Bernanke's gang might be thinking along the same lines. And before you could say "now wait just a cotton pickin' minute," the stock market was off to the races!
Then at 10:00 am eastern, traders got another big treat in the form of the ISM Non-manufacturing Index, which is designed to provide a look at the state of the services sector in the U.S. economy. And since services account for just about two-thirds of our GDP, it was indeed a pretty big deal when the number came in at 53.2, which was above 50 (the line in the sand between economic expansion and contraction), above expectations, and above last month's reading. The computers at Ned Davis Research even tell us that the economy has grown at a rate of 2.4% per year when the ISM readings are in their current mode, which is a bit better than most folks are expecting these days.
So, with a couple of big things to talk about, the bulls brushed aside worries about the little things such a possible downgrade of Ireland's debt and proceeded to break on through to the other side of the little range that had developed over the past two weeks. And as long as you are okay with the idea that the economies of the world aren't strong enough to stand on their own two feet, then you too can focus on the big stuff and buy 'em with both hands.
But before you come to the conclusion that Tuesday's big move means that it's clear sailing from here and that the little negatives don't matter anymore, let's remember that this remains a news-driven environment. And with a couple of pretty big things about to make their way to a computer screen near you soon (i.e. the jobs report and the earnings parade), it might be a good idea to continue to look at both the big and little things for a while longer.
Turning to this morning... It's been a busy morning so far as the Challenger and ADP reports put a damper on the jobs picture; the IMF cut its global growth forecast; and Ireland was downgraded at Fitch. None of which has been positive for stocks so far.
On the economic front... ADP reported that the private sector job market contracted during the month of September. The report shows that private sector jobs fell by 39,000 jobs during the month, which was a well below the consensus expectations for a gain of about 21K. August’s report was revised higher to a gain of 10,000 jobs, up from the initial report of -10K.
Finally, we wish you all the best for a productive and enjoyable day...
Here are the important indicators we review each morning before the opening bell...
Major Foreign Markets:
- Australia: +1.66%
- Shanghai: +1.72%
- Hong Kong: +1.07%
- Japan: +1.81%
- France: +0.62%
- Germany: +0.75%
- London: +0.70%
Crude Oil Futures: - $0.56 to $82.56
Gold: + $4.60 to $1344.90
Dollar: higher against the Yen and Pound, lower vs Euro
10-Year Bond Yield: Currently trading at 2.41%
Stocks Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: -2.25
- Dow Jones Industrial Average: -16
- NASDAQ Composite: -5.18
Wall Street Research Summary
- Prudential (NYSE:PRU) - Barclays
- Apple (NASDAQ:AAPL) - Estimates increased at BMO Capital
- Rovi Corp (NASDAQ:ROVI) - Target increased at Canaccord Genuity
- Lubrizol (LZ) - Citi
- Archer-Daniels (NYSE:ADM) - Target increased at Credit Suisse
- Maxim Integrated (NASDAQ:MXIM) - Credit Suisse
- Comerica (NYSE:CMA) - Deutsche Bank
- Viacom (VIA.B) - Janney Capital
- Equnix (EQIZ) - Citi
- ON Semiconductor (ONNN) - Credit Suisse
- Micron (NASDAQ:MU) - Mentioned cautiously at Deutsche Bank
- Chipotle Mexican Grill (NYSE:CMG) - Deutsche Bank
- First Horizon (NYSE:FHN) - Deutsche Bank
- Altera (NASDAQ:ALTR) - Morgan Stanley
- Xilinx (NASDAQ:XLNX) - Morgan Stanley
- Iron Mountain (NYSE:IRM) - Wells Fargo
Long positions in stocks mentioned: AAPL, ROVI
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