Daily State of the Markets 05/20: Yea, But? Or...

May 20, 2011 8:45 AM EDT
Good Morning. Listening to the analysis of Thursday's session proved interesting as the talking heads struggled to reconcile the idea that despite some crummy economic data, the major indices all wound up with green numbers at the end of the day. The bulls were quick to argue that this means the tone of the market has improved and that we can expect to see higher prices down the road. Our heroes in horns also suggested that the explosion of LinkedIn's IPO meant that money wants to come into the market. On the other side of the aisle though, our furry friends in the bear camp could be heard starting most of their comments with "yea, but" as their analysis of the data left them less than upbeat about the market's prospects going forward.

At issue yesterday was the fact that not one, not two, but a total of three economic reports hit the wires at 10:00 am eastern and all three came in below expectations. First, while no one really expects anything in relation to the housing market to be anything but disappointing, the report on Existing Home Sales did come in well below the consensus estimates. Next up, The Conference Board's Leading Economic Index (LEI) pulled back -0.3% in April when an increase of +0.1% had been expected. And finally, the Philly Fed Index dove to a reading of just 3.9 in May, which was well below consensus for a reading of 19.4 and April's 18.5 (and for the record, March's level was 43.4).

Sure, there was a "yea, but" available to those looking for it with regard to the economic data as the report on Weekly Jobless Claims, which had come out prior to the opening bell, did finally improve. The report showed initial claims for unemployment insurance dropped by 29K. And in the early going, this seemed to give the bulls the emotional boost they needed to push things higher at the open.

The bear camp opined that three crummy reports, with one of them being a fresh May number, trumped one highly volatile weekly report, which could easily be adjusted next Thursday. Those seeing the glass as half-empty feel that the economy has hit more than a speed bump and that investors had best face the fact that another "soft patch" (or worse) is likely on the way. Therefore, the bears feel they've got a pretty big "yea, but" to apply to yesterday's green screens.

Growing tired of the doom-and-gloom being espoused by their opponents, the bulls came back with one final "yea, but" of their own yesterday - the Fed. After Chicago Fed President Charles Evans said Thursday afternoon that inflation isn't a problem, that he was bumping up his view on consumer spending, and that the Fed Policy will remain "easy" for some time, the bulls simply pulled out the "Don't fight the Fed" argument.

Or... While I do enjoy a spirited debate on the importance of one economic report over another (I personally prefer the ISM numbers) and whether or not the Fed will continue to drive asset prices higher, there is another way to look at Thursday's action. In short, "the trade" was back and since the Euro was up on the session that meant the dollar was down and, yep, you guessed it; the stock market was up.

So, while we could certainly continue arguing about the data, we could also simply watch the linkage between the Euro/Dollar/Stock Market and be keep things simple. After all, until the boys and their toys are done with this trade, it may keep driving the action.

Turning to this morning... Stocks have turned down a bit both here at home and across the pond in reaction to comments from the Bundesbank saying that the "growth is likely to ease somewhat in the foreseeable future" in Germany. The German bank said that the expectation for a 1.5% growth rate in Q1 "considerably overstates" the momentum. Ouch.

On the Economic front... There are no economic reports scheduled for release today.

Thought for the day... Best of luck on this Friday and be sure to enjoy the weekend!

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

* Major Foreign Markets:
o Australia: -0.42%
o Shanghai: -0.04%
o Hong Kong: +0.16%
o Japan: -0.14%
o France: -0.36%
o Germany: -0.30%
o London: -0.21%

* Crude Oil Futures: +$0.25 to $98.69
* Gold: +$5.40 to $1497.80
* Dollar: higher against the Yen, lower vs. Euro and Pound

* 10-Year Bond Yield: Currently trading at 3.158%
* Stocks Futures Ahead of Open in U.S. (relative to fair value):

* S&P 500: -4.35
* Dow Jones Industrial Average: -28
* NASDAQ Composite: -5.32

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Existing-Home Sales, Standard & Poor's, Crude Oil, Philadelphia Fed Index