Daily State of the Markets 8/12: Double-Dip Redux?
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Good morning. At times, the stock market displays the attention span of an 8-year old boy afflicted with A.D.D. For example, no sooner had traders finished applauding Ben Bernanke and his merry band of Federal Reserve Bankers for crafting a statement and a plan that seemed to be appropriate for the circumstances, than the talk of a double-dip started up again. But this time, we're not just talking about the good ol' USofA sliding back into recession, but rather the major countries of the world.
Put simply it was worry over the macroeconomic picture that caused traders to click the sell button early and often on Wednesday. Yep, despite the fact that there is nary a single sign of economic contraction to be found right now, that profits are on the rise, and that there is no inflation to be found, it was fear of the dreaded double-dip that produced the quick dive of 2.5% - 3% in the indices.
Part of the problem on Wednesday came from the overseas markets. Investors reacted negatively to data out of Japan and China that got a less than enthusiastic response (China's retail sales came in at +17.9% vs. consensus of +18.4% while Japan's machine orders increased +1.6% vs. +5.5%). Next up, the Bank of England downgraded its forecasts for UK GDP growth. So, this batch of data, coupled with the Fed's downgrade of its outlook for the U.S. economy was what whipped traders into a tizzy about the potential for the economies of the world to slip back into recession.
Another part of the equation for losses on Wednesday had to do with a rather minor economic report here at home and the ensuing GDP math. Although the Trade Deficit number isn't widely followed these days, the big jump in the deficit definitely got analysts' attention. You see, with exports falling and imports rising, Goldman Sachs put a pencil to the numbers and suggested that the Q2 GDP number would need to be adjusted downward to the 1% - 1.5% range. And of course, this is a far cry from the already disappointing 2.4% growth rate that was reported last week in the government's first guesstimate.
With some well-respected economists saying that the economy didn't grow by 2.4% in the second quarter, but rather something about one-half that, it doesn't take much imagination to assume that with the way things are going, growth could disappear entirely. And from where I sit, it was the fear that the +2.4% GDP growth in the second quarter will suddenly morph into -1.5% by early next year that was responsible for another round of portfolio de-risking on Wednesday.
But, if you will recall, we've seen this movie before - and fairly recently. In the middle of June, stocks tanked nearly ten straight sessions on the idea that the economy was heading back into recession. However, you may also recall that in the 1020 - 1040 zone on the S&P 500, traders started to realize that some values were starting to develop and that oh, by the way, an economic slowdown is something very different than a recession.
So, will we see a replay of the June plunge and the July rebound? It is always hard to know for sure, but without any data suggesting that the economy will actually enter recession, this is the scenario we are envisioning.
Turning to this morning... Overseas markets have extended Wall Street's losses overnight while the pre-game indicators are pointing lower here in the U.S.
On the economic front... The Labor Department reported that initial claims for unemployment insurance for the week ending August 7 rose by 2,000 to 484K. The week’s total was 22K above the Reuters consensus for a reading of 464K. Continuing Claims for unemployment for the week ending July 31 were below consensus at 4.452M vs. expectations for 4.543M and last week’s 4.570M.
In addition, the government reported that Import Prices for the month of June rose by +0.2%, which was less than the consensus for an increase of +0.4%. Export prices fell by -0.2%, below expectations for +0.1%, but above last month’s revised -0.7%.
Finally, consider embracing an "attitude of gratitude" all day today...
Pre-Game Indicators
Here are the important indicators we review each morning before the opening bell...
Major Foreign Markets:
Australia: -1.28%
Shanghai: -1.23%
Hong Kong: -0.89%
Japan: -0.86%
France: -0.36%
Germany: -0.40%
London: +0.01%
Crude Oil Futures: - $1.11 to $76.91
Gold: + $8.80 to $1208.00
Dollar: lower against Yen, higher vs. Euro and Pound
10-Year Bond Yield: Currently trading higher at 2.72%
Stocks Futures Ahead of Open in U.S. (relative to fair value):
S&P 500: -11.07
Dow Jones Industrial Average: -78
NASDAQ Composite: -24.50
Earnings Before The Bell
Estee Lauder EL $0.29 $0.30
Kohl's KSS $0.84 $0.82
Perrigo PRGO $0.71 $0.68
Sara Lee SLE $0.19 $0.16
* Report includes items that make comparisons to the consensus estimate questionable
Wall Street Research Summary
Upgrades:
SL Green Realty (SLG) - BofA/Merrill
Hospira (HSP) - Bernstein
eBay (EBAY) - Citi
Bill Barrett (BBG) - Goldman Sachs
Simon Property Group (SPG) - Goldman Sachs
Blackstone Group (BX) - Goldman Sachs
Downgrades:
JDS Uniphase (JDSU) - AURIGA
Equity Residential (EQR) - BofA/Merrill
Home Properties (HME) - BofA/Merrill
Broadcom (BRCM) - BMO Capital
Intel (INTC) - BMO Capital
Marvell (MRVL) - BMO Capital
Texas Instruments (TXN) - BMO Capital
Altera (ALTR) - BMO Capital
Xilinx (XLNX) - BMO Capital
Kellogg (K) - Credit Suisse
CME Group (CME) - Goldman Sachs
CB Richard Ellis (CBG) - Goldman Sachs
Cisco (CSCO) - Oppenheimer
Long positions in stocks mentioned: CSCO, EQR
For more "top stock" portfolios and research, visit TopStockPortfolios.com
The opinions and forecasts expressed are those of David Moenning, founder of TopStockPortfolios.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in our websites and TopStockPortfolios publications is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.
Put simply it was worry over the macroeconomic picture that caused traders to click the sell button early and often on Wednesday. Yep, despite the fact that there is nary a single sign of economic contraction to be found right now, that profits are on the rise, and that there is no inflation to be found, it was fear of the dreaded double-dip that produced the quick dive of 2.5% - 3% in the indices.
Part of the problem on Wednesday came from the overseas markets. Investors reacted negatively to data out of Japan and China that got a less than enthusiastic response (China's retail sales came in at +17.9% vs. consensus of +18.4% while Japan's machine orders increased +1.6% vs. +5.5%). Next up, the Bank of England downgraded its forecasts for UK GDP growth. So, this batch of data, coupled with the Fed's downgrade of its outlook for the U.S. economy was what whipped traders into a tizzy about the potential for the economies of the world to slip back into recession.
Another part of the equation for losses on Wednesday had to do with a rather minor economic report here at home and the ensuing GDP math. Although the Trade Deficit number isn't widely followed these days, the big jump in the deficit definitely got analysts' attention. You see, with exports falling and imports rising, Goldman Sachs put a pencil to the numbers and suggested that the Q2 GDP number would need to be adjusted downward to the 1% - 1.5% range. And of course, this is a far cry from the already disappointing 2.4% growth rate that was reported last week in the government's first guesstimate.
With some well-respected economists saying that the economy didn't grow by 2.4% in the second quarter, but rather something about one-half that, it doesn't take much imagination to assume that with the way things are going, growth could disappear entirely. And from where I sit, it was the fear that the +2.4% GDP growth in the second quarter will suddenly morph into -1.5% by early next year that was responsible for another round of portfolio de-risking on Wednesday.
But, if you will recall, we've seen this movie before - and fairly recently. In the middle of June, stocks tanked nearly ten straight sessions on the idea that the economy was heading back into recession. However, you may also recall that in the 1020 - 1040 zone on the S&P 500, traders started to realize that some values were starting to develop and that oh, by the way, an economic slowdown is something very different than a recession.
So, will we see a replay of the June plunge and the July rebound? It is always hard to know for sure, but without any data suggesting that the economy will actually enter recession, this is the scenario we are envisioning.
Turning to this morning... Overseas markets have extended Wall Street's losses overnight while the pre-game indicators are pointing lower here in the U.S.
On the economic front... The Labor Department reported that initial claims for unemployment insurance for the week ending August 7 rose by 2,000 to 484K. The week’s total was 22K above the Reuters consensus for a reading of 464K. Continuing Claims for unemployment for the week ending July 31 were below consensus at 4.452M vs. expectations for 4.543M and last week’s 4.570M.
In addition, the government reported that Import Prices for the month of June rose by +0.2%, which was less than the consensus for an increase of +0.4%. Export prices fell by -0.2%, below expectations for +0.1%, but above last month’s revised -0.7%.
Finally, consider embracing an "attitude of gratitude" all day today...
Pre-Game Indicators
Here are the important indicators we review each morning before the opening bell...
Major Foreign Markets:
Australia: -1.28%
Shanghai: -1.23%
Hong Kong: -0.89%
Japan: -0.86%
France: -0.36%
Germany: -0.40%
London: +0.01%
Crude Oil Futures: - $1.11 to $76.91
Gold: + $8.80 to $1208.00
Dollar: lower against Yen, higher vs. Euro and Pound
10-Year Bond Yield: Currently trading higher at 2.72%
Stocks Futures Ahead of Open in U.S. (relative to fair value):
S&P 500: -11.07
Dow Jones Industrial Average: -78
NASDAQ Composite: -24.50
Earnings Before The Bell
Estee Lauder EL $0.29 $0.30
Kohl's KSS $0.84 $0.82
Perrigo PRGO $0.71 $0.68
Sara Lee SLE $0.19 $0.16
* Report includes items that make comparisons to the consensus estimate questionable
Wall Street Research Summary
Upgrades:
SL Green Realty (SLG) - BofA/Merrill
Hospira (HSP) - Bernstein
eBay (EBAY) - Citi
Bill Barrett (BBG) - Goldman Sachs
Simon Property Group (SPG) - Goldman Sachs
Blackstone Group (BX) - Goldman Sachs
Downgrades:
JDS Uniphase (JDSU) - AURIGA
Equity Residential (EQR) - BofA/Merrill
Home Properties (HME) - BofA/Merrill
Broadcom (BRCM) - BMO Capital
Intel (INTC) - BMO Capital
Marvell (MRVL) - BMO Capital
Texas Instruments (TXN) - BMO Capital
Altera (ALTR) - BMO Capital
Xilinx (XLNX) - BMO Capital
Kellogg (K) - Credit Suisse
CME Group (CME) - Goldman Sachs
CB Richard Ellis (CBG) - Goldman Sachs
Cisco (CSCO) - Oppenheimer
Long positions in stocks mentioned: CSCO, EQR
For more "top stock" portfolios and research, visit TopStockPortfolios.com
The opinions and forecasts expressed are those of David Moenning, founder of TopStockPortfolios.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in our websites and TopStockPortfolios publications is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.
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