Wednesday, June 01, 2011

Stocks Dropping During Final Hour on Global Growth Worries, Emerging Markets Inflation Fears, Technical Selling, Eurozone Debt Concerns

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: About Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.54 +13.72%
  • ISE Sentiment Index 83.0 +3.75%
  • Total Put/Call 1.14 +46.15%
  • NYSE Arms 3.07 +297.03%
Credit Investor Angst:
  • North American Investment Grade CDS Index 90.65 +86%
  • European Financial Sector CDS Index 109.92 -3.02%
  • Western Europe Sovereign Debt CDS Index 196.92 +1.05%
  • Emerging Market CDS Index 216.89 +2.34%
  • 2-Year Swap Spread 19.0 unch.
  • TED Spread 21.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .04% -1 bp
  • Yield Curve 252.0 -6 bps
  • China Import Iron Ore Spot $168.80/Metric Tonne -.59%
  • Citi US Economic Surprise Index -91.30 -19.9 points
  • 10-Year TIPS Spread 2.21% -3 bps
Overseas Futures:
  • Nikkei Futures: Indicating -150 open in Japan
  • DAX Futures: Indicating -51 open in Germany
  • Lower: On losses in my Tech, Medical, Retail and Biotech sector longs
  • Disclosed Trades: Added (IWM)/(QQQ) hedges and added to my (EEM) short
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades back below its 50-day moving average to session lows on global growth concerns and emerging market inflation fears. On the positive side, Education and Gaming shares are relatively strong. Small-cap shares are outperforming again. Oil is falling -2.3% and the UBS-Bloomberg Ag Spot Index is falling -.62%. Weekly retail sales rose +3.9% last week versus a +4.0% gain the prior week and are down from a +5.1% gain the first week of May. On the negative side, Airlines, Road & Rail, REIT, Homebuilding, Construction, I-Banking, Banking, Networking, Paper, Steel, Oil Service, Energy, Alt Energy and Coal shares are under significant pressure, falling more than -2.75%. Small-cap and cyclical shares are underperforming. (XLF)/(IYR) have been very heavy throughout the day. Copper is falling -1.7%. The US price for a gallon of gas is unch. today at $3.78/gallon. It is up .64/gallon in less than 4 months. The 10-year yield is still falling too much too quickly, declining another -11 bps to 2.94%. The Greece sovereign cds is rising +2.16% to 1,451.09 bps, the Portugal sovereign cds is rising +1.6% to 690.36 bps and the Emerging Markets Sovereign CDS Index is soaring +10.04% to 175.37 bps. QE2 was overall a disaster, in my opinion and has directly contributed to the recent global economic slowdown. While any QE3 may temporarily boost stocks and commodities, it would likely lead to another serious global recession. The global economy is too fragile to sustain food/energy prices much above current levels. I cautioned a couple of months ago that global growth would likely slow much more than economists expected. Many are now calling for a snapback in growth over the coming months. While growth will likely improve modestly from current levels, a "snapback" is unlikely. While global growth has decelerated meaningfully, equity earnings estimates have continued to rise, which could lead to a surge in negative pre-announcements during the upcoming earnings season. A number of market-leading growth stocks are holding up well today. High-quality S&P 500 stocks are now the cheapest versus low-quality S&P stocks since 1997. Investors should begin to pay a higher premium for growth as the global economy decelerates. I expect US stocks to trade mixed-to-lower into the close from current levels on global growth worries, eurozone debt concerns, emerging markets inflation fears, profit-taking, technical selling and more shorting.


Anonymous said...

Gary said...