Thursday, April 12, 2012 9:08 a.m. ET
DJIA: 12,805.39 S&P 500: 1368.71
TODAY: The market dropped too far too fast over the last 5 days and is probing for a comfort level as institutional investors try to assess new negatives and uncertainties.
I expect some cautious buying in here since most stocks have pulled back 3% - 5%. Currently, I see the upside limited to a rise to DJIA 12,895 (S&P 500: 1377). A earnings surprise could bump it higher.
As we have seen in the past, it’s difficult to gauge the seriousness of Europe’s sovereign debt issues, because of differences between euro-area country’s economies, cultures and politics, as well as what action the ECB will take.
Safe to say, the U.S. economy is grinding out a recovery; if it falters the Fed will step in to goose it.
Tuesday I said we were faced with two negatives (Spain, possible slowing of the U.S. economic recovery) and one uncertainty (Q1 earnings).
Comments by Fed Vice-Chair Janet Yellen and published in Wednesday’s Fed. “Beige Book” suggest a moderate economic recovery with growth in all 12 Fed Districts and no worrisome signs of inflation other than fuel costs. The Fed plans to maintain a “highly accommodative” policy with low interest rates through 2014.
Italy’s borrowing costs are increasing in sympathy with rising interest rates in Spain. A re-ignited fear of contagion as a result of Spain’s problems will continue to temper enthusiasm for aggressive buying in stocks here.
That leaves Q1 earnings where Bloomberg’s survey of economists concludes S&P 500 earnings will increase 8.3% this year. Better than expected earnings could push stocks higher even in face of bad news out of Europe and a lack of reassurance that the U.S. economic expansion is still moving forward.
Jobless Claims for the week ending April 7 were up 13,000 to 380,000, but were likely impacted by seasonal adjustments for the Easter Holiday. Producer Prices were unchanged in March vs. a 0.4% gain in February.
Without a major catalyst, this market needs time to think!
ECONOMIC REPORTS this week:
ICSC Goldman Store Sales (7:45) rose 0.5% for week ending April 7 up 4.5% over a year ago.
Wholesale Trade (10 a.m.) Sales were up 1.2% to $409.4 billion from January and up 9.3% over a year ago. Inventories were $478.9 billion, up 0.9% over January and up 9.3% over a year ago. The Inventory/Sales Ratio was unchanged at 1.17.
Import/Export Prices (8:30) jumped 1.3% in March after a revised 0.1% increase in February due to higher oil prices which were up 1.8% in February alone, 18.4% year over year.
Beige Book (2 p.m.)
Treasury Budget (2 p.m.)The budget deficit increased 5.3% in March. For the first six months of the fiscal year (OCT) the budget deficit is $779.0 billion vs. $829.4 billion for the same period a year ago.
Jobless Claims (8:30) Declined 6,000 for the March 31 week to 357,000 bringing the four-week moving average down 4,250 to 361,750.
International Trade (8:30)The international trade gap expanded in January to 52.6 billiom from $50.4 billion in December. The increase in the gap was accounted for by a widened deficit in petroleum goods.
Producer Price Index (8:30) Surged in February 0.4% powered by a 1.3% spike in energy. Core PPI was off 0.2%.
Consumer Price Index (8;30)Jumped 0.4% after a 0.2% gain in January. Excluding food and energy, it was up 0.1%.Gas prices were up 6.0%, food prices flat.
Consumer Sentiment (9:55 a.m.) The Reuter’s Univ, of Michigan Consumer Sentiment Index for March rose to 76.2 vs.75.3
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