Investor’s first read – Brooksie’s edge before the open
Thursday, June 28, 2012 9:06 a.m. ET
DJIA: 12,627.61
S&P 500: 1331-85
Nasdaq Comp.: 2875.32
Russell 2000: 776.21
DJIA 10,875 ? Yes, if prevailing uncertainty persists. The stock market cannot hang tough month after month with such key issues up in the air.
Clearly, there is no shortage of uncertainties and negatives confronting investors. Europe, the Supreme Court’s ruling on healthcare, the U.S. economy, and the fiscal cliff.
Then, as if we don’t have enough on our plates, here comes Q2 earnings, and the revisions that will accompany them.
Only one of these issues will get a definitive answer today shortly after 10 o’clock – President Obama’s healthcare plan.
U.S. economic indicators have been mixed with a bias to the downside. European and Asian economies are also weakening.
Not only is Congress unwilling to address the “fiscal cliff,” it is busy trying to postpone the January 1 deadline until March.
And European leaders are still too divided to agree on concrete solutions to their debt problems.
Not much is said about Q2 corporate earnings, except that companies with a large portion of their earnings coming from international sources will be hard-pressed to show good results. Many of these companies stand to impact the major market averages due to their large market capitalizations.
CONCLUSION: These issues need time to be resolved. That calls for lower prices.
Facebook (FB): The stock struggled to survive a crunch at the open which took its price down to $31.90, off $1.20 from Tuesday’s close. It rallied short of the $33 level tested to day’s lows, then closed at $32.23. The 40-day waiting period for investment banks that participated in the botched IPO ended, freeing the bankers to publish an opinion but the returns were reportedly “mixed” with Morgan Stanley giving it an “Outperform” with a price target of $38, the IPO price over the next year.
William Blair gave it an Outperform, Citi Investment Research, had some nice things to say but gave it a “Neutral” rating. Credit Suisse also gave it a “Neutral” rating with a price target of $34, Goldman Sachs gave it a BUY, and BMO Capital Market gave it a price target of $25.
It doesn’t appear the comments helped the stock and it is at risk of breaking below support in the $31.5 – $32 area. With some support developing a smidge below 30. Again, the stock was hurt by a botched IPO, creating sellers, short-sellers and a wariness to recommend the stock due to overhead supply.
Most likely it will slide into a sideways trading range and bump along between $28.50 and $32 until the overhead is worked off later in the year.
What were these guys thinking when the underwrote the stock ? I don’t own FB, have never owned FB.
EUROPE:
The European summit meeting starting on Thursday may produce some visibility as to whether the euro can be saved, or it may simply extend “uncertainty” for another time or another summit.
Get ready for a new euro-term – “dissolution risk,” what happens if you are in line to be compensated in euros, but the euro no longer exists. (see Bloomberg.com, “U.S. Banks Aren’t Nearly Ready for Coming European Crisis.” – Simon Johnson)
ECONOMIC INDICATORS: The Street is watching the economy for enough signs of weakness to prompt measures by the Fed to stimulate the economy. (bad is good !). Interest rates can’t get much lower. People on fixed incomes are without income on savings, insurance companies are forced to jump premiums because their treasuries yield next to nothing. Generally, they make their money on investments not insurance risk.
MONDAY:
Chicago Fed Activity Index (8:30): Dipped into negative territory to a minus 0.45 in May vs. a plus 0.08 in April. The Index encompasses 85 economic indicators drawn from production and income, sales, employment/unemployment, hours, consumption, housing, orders and inventories.
New Home Sales (10:00): Surged 7.6% in May to 369,000 units at an annual rate well above estimates that ran a 346,000 rate., Residential construction is expected to contribute positively to GDP this year for the first time since 2005. Sales advanced 3.3% in April after a 7.3% drop in March and 5.6% rise in February.
Dallas Fed Manufacturing Index (10:30): Increased 5.5 points to 15.5 in June, the strongest reading in 15 months, however the index of future business activity declined to 1.3 from 4.3. he survey covered 91 Texas manufacturers.
TUESDAY:
S&P Case-Shiller Home Price Index (9:00): April home values rose 1.3%, the first increase in seven months. Home prices increased in 19 of 20 major cities One reason for the firming of prices is the low inventory of previously occupied homes for sale which is down to 2006 levels.
Consumer Confidence (10:00): dropped in June, the fourth straight monthly decline. The Index declined to 62 from 64.4 in May. Its worst reading was 25.3 in February 2009 !
Richmond Fed Mfg Index (10:00): Dropped 7 points in June to 3 in May, slightly more than projected. However, “expectations” were generally more optimistic.
WEDNESDAY:
Durable Goods (8:30): Posted a bigger gain in May than projected with a rise of 1.1% vs. a decline of 0.2% in April. Ex transportation, May gained 0.4%.
Pending Home Sales Index(10:00): Jumped sharply 5.9% in May boosting the Index to 101.1 vs. 95.5 in April, the highest reading since April 2010 when the home-buying tax credit expired. The Index is now 13.3% higher than a year ago.
THURSDAY:
GDP (8:30): Second estimate. Real GDP grew at a 1.9% annual rate vs an initial estimate of plus 2.2%. Q4 was plus 3.0% annualized.
Jobless Claims (8:30): were down 6,000 to 386.000 for the week ended June23 vs. revised 386,000. The 4-week moving average was down 750 claims to 386,750.
Kansas City Fed Mfg Index (11:00):Rebounded to 9 in May from 3 in Apil.
FRIDAY:
Personal Income (8:30):
Chicago PMI (9:45):
Consumer Sentiment (9:55):
George Brooks
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The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
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