Wednesday, June 13, 2012 9:08 a.m. ET
S&P 500: 1324.18
Nasdaq Comp.: 2843.07
Russell 2000: 761.53
Another violent swing in stock prices, but clearly the kind investors would like to see more of.
The market rebound was triggered by “news” that the European Central Bank (ECB) endorsed a plan to guarantee bank deposits and speculation that the U.S. Federal Reserve would stimulate economic growth.
This is a classic case of the market responding to “news,” i.e. the news whipsaw.
News that Italy’s borrowing costs surged is one of the news items to put a damper on investor enthusiasm this morning. Italy’s one-year T-bills were auctioned off yesterday at a 3.97% rate, up from 2.34% on May 11.
Greece’s elections will be held on June 17, this Sunday and will decide whether Greece will accept the austerity plan required by the International Monetary Fund (IMF) as condition of receiving financial assistance.
TODAY: Near-term, this does not look like a sustainable turn to the upside, clearly not without major, major breakthroughs in Europe, our economy and the horrors of the fiscal cliff.
Thursday and Friday will bring “some” clarity to our economic picture with Jobless Claims at 8:30 tomorrow, the Empire State Manufacturing report at 8:30 Friday, Industrial Production at 9:15 and Consumer Sentiment at 9:55.
These are potentially “news-producing” events and capable of moving the market sharply up or down.
Right now, the market is hanging tough because it is assured the Fed will step in if necessary to head off a sharper slump in the economy.
I have no problem with adversity, my problem here is that the investment environment isn’t ugly enough. There is serious downside risk if matters even get a little worse from here, or deteriorate seriously.
I believe the market needs time for these three negatives to attract solutions.
Whether European leaders come up with a solution for the euro-areas sovereign debt woes or whether the U.S. Fed announces a plan to stimulate growth here is debatable.
Worth noting at presstime:
May retail sales were down 0.2% vs down 0.2% in April.
Producer prices dropped 1.0% in May as a result of plunging energy and food prices.
LOWER INTEREST RATES ?
I have doubts that lower interest rates in this environment will help boost the economy. Millions of consumers that used to derive needed income from safe investments (money markets, CDs. etc.) get nothing on their savings. Many have bought long-term bond funds in search of a greater yield and will get decimated by a plunge in portfolio worth when interest rates do turn up.
Corporations and wealthy individuals have all the money, so it stands to reason they should be given incentives to invest it where it generates jobs and income for others.
How /what ?
I lack the expertise in this area, but guess it would be some form of private investment vehicle offering a tax break plus added return, a muni bond with a kicker as irresistible as finger-lickin Lexington style Carolina’s pork barbeque ribs, or Pennsylvania’s old-fashioned Pa. Dutch chicken pot pie.
Facebook (FB): FB’s stock got a boost yesterday from the Internet researcher, ComScore, which announced that marketing on FB can increase sales. It explained fans of Starbucks (SBUX) and Target (TGT) were more likely to make purchases than a control group that were not fans. The study comes a day after the firm noted the number of unique visitors to FB’s site is growing at a slower pace. The report was partly commissioned by FB, a ComScore client, and was based on a panel of users who agreed to participate in the study.* This is the kind of release that accompanies a depressed stock.
What is needed is for a major Wall Street institution to release an in-depth report countering the negative press that FB’s income model is sound. That would attract buyers and chase shorts and prompt a rally across 30 to 31.50.
It is assumed that Stocks that are heavily shorted offer great buying opportunities, all that is needed is to trigger short covering. Not so. Shorts can hold the line by selling more shares shorts and thus absorbing buying up to a point. Since their position was acquired at higher levels, more shorting at lower levels doesn’t impact their average cost meaningfully.
The U.S. Treasury Budget Report was released at 2p.m. yesterday. After eight months, the nation’s deficit stands at 844.5 billion, down 8.9% from a year ago. Receipts are up 5.4% so far this fiscal year with spending flat.
April produced the first monthly surplus in 3.5 years
ECONOMIC REPORTS: With economies in Asia and Europe sagging, the Street is watching to see which direction the U.S. economy will take.
Will this trigger QE3 by the Fed.?
NFIB Small Business Optimism Index (7:30): The Optimism Index slipped slightly in May 0.1% to 94.4. Employers continue to have difficulty finding qualified people to hire,
Import and Export Prices (8:30):Lower energy and food prices contributed to the largest drop in two years. Overall May import prices declined 1.0% vs no increase in April.
Treasury Budget (2:00p.m.): April posted a $59.1 billion surplus, the first in 3 ½ years bringing the year-to-date deficit down to $719.9 billion well below the year ago deficit of $869.8 billion.
Produces Price Index (8:30): Dropped 1.0% vs. a 0.2% decline in April as a result of plunging energy and food prices.
Retail Sales 8:30): Decline 0.2% in May vs. a decline of 0.2% in April.
Business Inventories (10:00): Inventories rose 0.3% in March as sales rose 0.6%. The inventory-to-sales ratio stands at 1.27
Jobless Claims (8:30): Claims fell 12,000 to 377,000 for the June 9 week.. The 4-week average in 377,750
Consumer Price Index (8:30): Unchanged in April after a 0.3% rise in March. Excluding food and energy, it was up 0.2% vs. the same in March.
Empire State Manufacturing Index (8:30): The Index rose 10.53 points to 17.09 in May. New Orders were up to 8.32 from 6.48 after a strong increase in shipments.
Industrial Production (9:15):Jumped 1.1% after a 0.6% drop in March.
Consumer Sentiment (9:55): Index was up 3 points in May to 79.3 from April.
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.