Investor’s first read – Brooksie’s edge before the open
Monday July 31, 2012 9:15 a.m.
S&P 500: 1385.30
Nasdaq Comp.: 2945.84
Russell 2000: 791.58
Yesterday’s trading suggested investors were in a “wait-and-see” mode ahead of the FOMC meeting today and tomorrow. This week’s lineup of economic reports may be dire enough to justify Fed action. Clearly the Dallas Fed Survey reported yesterday (see below) suggests the economy is slumping.
Obviously, the market hasn’t stabilized and rebounded during the last two months, because the Street is encouraged by the direction of the economy, it is slumping at a disturbing rate.
I believe the buoyancy is due to expectations that the Fed will introduce bold new measures to bolster economic activity that will ensure a recovery and justify the buying that has taken place.
However, if the Fed doesn’t act, or its actions are disappointing, the market will take a hit.
Looking through the fog at the big picture, there are a lot of positives.
- The housing industry, the demise of which triggered the Great Recession/Bear Market of 2007 – 2009, is recovering.
- While we came within a hair of an economic/financial meltdown, we didn’t crash.
- There is nowhere else for institutions with huge reservoirs of cash to invest client’s funds then in stocks, which are reasonably priced.
- Leaders in Europe finally appear to be on the same page insofar as preserving the euro and avoiding a debilitating financial meltdown.
- Companies are making money and flush with cash; consumers are experiencing improved liquidity versus three years ago; interest rates are historically low in case anyone wants to borrow and lenders are willing to lend.
- The wars in Iraq and Afghanistan have wound down.
If the Fed does propose new measures to stimulate the economy, the market will respond favorably, though its recent surge discounts much of the prospective action the Fed can take.
We are still faced with some uncertainties, namely an economy that may not respond to Fed stimulus; the November 6 elections; and the :fiscal cliff” centering on tax cuts/increases and deep spending cuts. None of these will be resolved near-term, so caution is warranted, no matter whar the Fed does.
Facebook (FB) With FB’s 6-point plunge on heavy volume late last week was climactic and suggests the stock may find a low this week. Friday, I thought weekend gloom would muster enough sellers to produce a selling climax Monday. The stock continues to trade poorly. I suspect much of the buying that is being done is short covering.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I did start covering FB after the IPO, because I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. There are cases where a company offers a great product/service, but its stock isn’t a good buy.
Dallas Fed Economic Rpt (10:30a.m.): The Index plunged in July to a negative 13.2 from a positive 5.8 in June. New orders dropped to 1.4 from 7.8. These were the first negative readings in 10 months.
Personal Income/Outlays (8:30a.m.): Rose to $61.8 billion (+0.5%) in June, Disposable P.I. rose $52.4 billion (+0.4%). Personal Consumption Expenditures declined $1.3 billion in the period.
S&P Case-Shiller 20-City Home Price Index (9:00a.m.): Average home price in May increased 2.2% over April. !7 of the 20 regions surveyed showed increases.
Chicago PMI (9:45a.m.): Rose slightly in June to 52.9 from 52.7 in April. While at 51.9, New Orders are still above the “growth threshold” (50), they are well below February 2011 high of 70.
Consumer Confidence (10:00a.m.): Dropped 3.7% to 62.0 in June, the 4th straight decline. Consumer future expectations were the biggest contributor.
ADP Employment Rpt (8:15a.m.): Increased an estimated 176,000 jobs in June vs. a gain of 136,000 in May.
PMI Manufacturing Index (9:00a.m.): Declined to 52.5 in June from 54.0 in May, the weakest in 18 months.
ISM Manufacturing Index (10:00a.m.): Declined to 49.9 in June from 53.5 in May. New Orders came in at 47.8 in June vs. 53.5 in May (ugh !)
Construction Spending (10:00a.m.): Rose 0.9% in May following a 0.56% gain in April. The increase was driven by private residential spending.
Jobless Claims (8:30): Plunged 35,000 for the week July 21 after a rise of 36,000 the prior week.
Factory Orders (10:00a.m.): Jumped 0.7% in May after a like decline in April.
Employment Situation Rpt (8:30a.m.): Rose a minor 80,000 in June after an increase of 77,000 in May and 68,000 increase in April.
ISM Non-Manufacturing Index(10:00a.m.): Declined 3.0% in May to 52.1.
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.