Investor’s first read – Brooksie’s edge before the open
Wednesday August 1, 2012 9:15 a.m.
S&P 500: 1379.32
Nasdaq Comp.: 2939.52
Russell 2000: 786.78
Bad is good ? That is what it appears the Street believes these days. I am referring to economic reports recently released, as well as this week.
It is perceived that odds are greater that the Fed will decide to ratchet up its attempt to stimulate the economy if economic reports indicate a continued deterioration.
If deterioration in the economy is questionable, the Fed may defer action, ergo more of what we have had to date – slow or moderately negative growth and uncertainty, the latter a serious drag on consumer and business spending, and consequently – employment.
Obviously, the Fed can’t go “all-in” on stimulus, it is already short on tools it can use. We survived a near-meltdown in 2008 – 2009, now we have to be patient.
We are getting words of encouragement and commitment to the euro from Europe, but most of their countries are in or close to recession, so our recovery will be slow. There is no way around it. This all takes time!
CONFIDENCE is the key. As soon as businesses and consumers stop worrying about a global meltdown, and about the November election and Congress being unwilling to agree on reasonable solutions to key issues and especially on taxes and spending cuts (fiscal cliff), that’s when spending and hiring will accelerate.
CONCLUSION: Investors have been buying in hopes the Fed will act. If it doesn’t, this up move in prices will be short-lived. If the Fed announces meaningful stimulus, we should see an extension of the upmove that started July 24, most likely to at least DJIA 13,280 (S&P 500: 1,400). If not, look for a drop to DJIA 12,800 (S&P 500: 1360.
At that point, the Street will begin to worry about the effectiveness of the Fed’s action, i.e. will it work ?
Facebook (FB): Again FB took a pasting yesterday, indicating investors are hitting the panic button, increasing odds it will find a low this week.
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 July to 53.7 from 52.5 in June. New Orders were up to 59.9 from 51.9, but employment sagged to 53.3 from 60.4.
Consumer Confidence (10:00a.m.): unexpectedly rose to 65.9 from 62.7 well above projections for 61.5. Lower gas prices and an improving housing market helped boost sentiments.
ADP Employment Rpt (8:15a.m.): Jobs increased an estimated 163,000 in July vs. a 176,000 jobs in June and 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.