Investor’s first read – Brooksie’s edge before the open
Monday, May 7, 2012 9:15 a.m. ET
DJIA: 13038.27
S&P 500: 1369.10
Nasdaq Comp.: 2956.34
Russell 2000: 791.84
That was a nasty plunge, a bit more than I expected, but it was Friday and there was some air between Thursday’s close and today’s open, ergo room to slide.
The BIG money was selling or on the sidelines for another reason – France and Greece. Voters at each rejected austerity policies designed to address sovereign debt woes and preserve the euro but with greater emphasis on renewed economic growth.
The pros and cons of these elections will roil investor sentiments until global stock markets find a level that discounts the new uncertainties.
There is a trade-off here between austerity measures that reel in deficits and vital economic growth that increases the euro-area nations ability to grow out of their problems.
Undoubtedly, the U.S. economy was poised to be adversely impacted by a European recession before the French and Greece elections, but odds were our economy would continue to grow anyhow.
Presently, Greece is struggling to form a “national salvation” (coalition) government with the European Union bailout at risk.
On a platform of increased spending and higher taxes, Socialist, Francois Hollande beat Nicholas Sarkozy to become the new president of France injecting yet another element of uncertainty in the big picture.
CONCLUSION: Uncertainty ! It will keep a lot of institutional money on the sidelines and that means limited upside and a greater risk of downside until the consequences of actions by the voters in France and Greece are better understood.
Here in the United States, the big question is also the obvious question, is the economy tanking ?
The production and employment indicators have been saying it is.
But this is the third spring in a row that we have had softness in both, only to be followed by a recovery.
TODAY: Based on the trading in stock-index futures prior to the open, the Street isn’t rattled by developments abroad. Look for a mixed market with the chances of a drop to around DJIA 12,940 (S&P 500: 1356) during the day, probably in early afternoon.
ECONOMIC REPORTS: Now that investors are questioning the sustainability of the economic recovery which started in June 2009, these reports are watched closely. Unfortunately, answers to this question won’t be forthcoming this week, the schedule of reports is light.
MONDAY:
Consumer Credit (3:00) – Rose $8.7 billion in February following a revised $18.6 billion rise in January. A big jump in non-revolving credit for automobile purchases has driven a big six month surge,
WEDNESDAY:
Wholesale Trade (10 a.m.) – wholesale inventories rose 0.9% in February, sales rose even more (1.2%), however the stock to sales ration remained unchanged.
THURSDAY:
International Trade (8:30 a.m.) The U.S. International Trade gap narrowed sharply in February to $46.0 billion from $52.5 billion. Both petroleum and non-petroleum goods contributed to the decrease.
Jobless Claims (8:30) – declined a healthy 27,000 in the April 28 week to 365,000.
Import/Export Prices (8:30) – Rose 1.3% in March as imported petroleum prices surged 3.0%.The rise in petroleum prices spilled over to industrial supplies.
FRIDAY:
Producer Price Index(8:30) – Unchanged in March after a big 0.4% rise in February. Core PPI gained 0.3%, following a gain of 0.2% in February. Energy decreased 1.0% after a 1.3% jump in February, however gasoline dropped 2.0% after a 4.3% jump in
February.
Consumer Sentiment Index (9:55 a.m.) –The Index increased to 76.4 in April from 76.4 in March.
George Brooks
*Stock Trader’s Almanac
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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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