Investor’s first read – Brooksie’s edge before the open
Monday July 30, 2012 9:05 a.m.
DJIA: 13,075.66
S&P 500: 1385.97
Nasdaq Comp.: 2958.09
Russell 2000: 795.91
Friday’s spike in stock prices exceeded my forecast, resulting in a technical breakout for the DJIA and S&P 500, though not for the Nasdaq Comp. and Russell 2000.
This is a huge week for economic reports. Will these reports drive stocks up or down ?
Good question !
It appears the stock market has been rising in defiance of soft economic readings because the Street has been hoping the Fed (FOMC meets Tuesday/Wednesday) will employ aggressive new measures to stimulate the economy.
If we don’t get Fed action this week, more bad readings on the economy this week may be seen as increasing the odds the Fed will act in the near future, i.e.bad is good. CONCLUSION: Fed action will help the stock market, but I am not sure it will help the economy unless the Fed can prompt banks to lend more money. I believe recoveries from severe recessions take longer than those following less severe recessions, so it is more an issue of time than Fed action.
Some negatives have retreated from the scene. The U.S. housing market has stabilized and is improving and the European sovereign debt crisis is receding in face of promises by the ECB and leaders in key countries, Germany and France to ensure the survival of the euro. The ECB’s meeting Thursday is anxiously awaited.
The demise of the housing market was a prime contributor to the Great Recession/Bear Market, so its recovery stands to empower the recovery of both.
The obvious remaining negatives would be a recession regardless of what the Fed does, a nation divided over political ideologies and a big election in November, and the looming “fiscal cliff,” involving selective tax increases and $1.5 trillion in spending cuts none of which Congress is willing to deal with before the November 6 elections. While Congress has some wiggle room concerning spending cuts, the angst leading up year-end stands to be a drag on stock prices.
The Fed still has some arrows in its quiver. Definitive action this week would drive stocks higher, inaction would prompt a correction.
ECONOMIC REPORTS:
MONDAY:
Dallas Fed Economic Rpt (10:30a.m.): Rebounded to plus 5.8 in June from a negative 5.1 in May. June’s index for production jumped to 15.5 from 5.5.
TUESDAY:
Personal Income/Outlays (8:30a.m.): Rose 0.2% in May, the same as April. May consumer spending was flat.
S&P Case-Shiller 20-City Home Price Index (9:00a.m.): jumped sharply 0.7% in April, its third straight gain.
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.
WEDNESDAY:
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.
THURSDAY:
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.
FRIDAY:
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.
Facebook (FB: 23.75) With FB’s 6-point plunge on heavy volume late last week was climactic and suggests the stock may find a low this week, maybe today under $20 a share. It appears that investors “can’t stand it anymore” and are dumping indiscriminately.
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 investment. I saw FB as one of those situations, but think at “a price” FB will be a “BUY.” .
RECENT POSTS:
June 15 DJIA 12,651 “Investors Hoping the Fed Comes to the Rescue”
June 18 DJIA 12,767 “Easy Does It ! Uncertainty Still Rules”
June 19 DJIA 12,741 “Fiscal Cliff Uncertainty Deadly for Economy”
June 20 DJIA 12,837 “Show and Tel for the Fed”
June 21 DJIA 12,824 “BIG Money Pondering Market’s Next Move”
June 22 DJIA 12,573 “Technical Bounce Then a Lower Close”
June 25 DJIA 12,640 “Huge News Week –Economy – Europe – Healthcare”
June 26 DJIA 12,502 “Delay in Fiscal Cliff Deadline ? Ugh !
June 27 DJIA 12,534 “Market Needs Time and Lower Prices”
June 28 DJIA 12,627 “September-October – DJIA 10,875 ?”
June 29 DJIA 12,602 “Finally, Signe of Life at the Euro-Summit – Buying Open
Risky Though”
July 2 DJIA 12,880 “Now, Back to the U.S.”
July 3 DJIA 12, 871 “New Quarter = Institutional Buyers”
July 5 DJIA 12,943 “Difficult Summer Ahead for Stocks”
July 6 DJIA 12,896 “Don’t Get Too Bearish ! Look for a Sept./Oct. Bottom”
July 9 DJIA 12,772 “Now for Q2 Earnings Reports !”
July 10 DJIA 12,736 “Earnings Surprises to Favor Bulls”
July 11 DJIA 12,653 “Stocks Not Celebrating European Accord –Raise Some
Cash”
July 12 DJIA 12,609 “June 4 Rebound “Must” Hold or Else !”
Vacation break
July 25 DJIA 12,617 “June 4 Lows at Risk”
July 26 DJIA 12,676 “Don’t Buy the Open”
July 27 DJIA 12,887 “Facebook Selling Climax Monday ?”
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.
