Broad Market Tone: - Advance/Decline Line: About Even
- Sector Performance: Mixed
- Volume: Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst: - VIX 17.28 +1.17%
- ISE Sentiment Index 126.0 unch.
- Total Put/Call .98 +7.69%
- NYSE Arms 1.32 +48.34%
Credit Investor Angst:- North American Investment Grade CDS Index 109.87 -2.18%
- European Financial Sector CDS Index 253.65 -2.91%
- Western Europe Sovereign Debt CDS Index 274.71 -2.74%
- Emerging Market CDS Index 274.76 -3.82%
- 2-Year Swap Spread 25.0 +1.0 basis point
- TED Spread 39.0 +1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -56.75 -3.25 basis points
Economic Gauges:- 3-Month T-Bill Yield .07% -1 basis point
- Yield Curve 128.0 -6 basis points
- China Import Iron Ore Spot $133.50/Metric Tonne -.37%
- Citi US Economic Surprise Index -63.90 -3.6 points
- 10-Year TIPS Spread 2.08 -2 basis points
Overseas Futures: - Nikkei Futures: Indicating +33 open in Japan
- DAX Futures: Indicating +24 open in Germany
Portfolio:
- Higher: On gains in my medical and biotech sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
- Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 hugs the flatline despite a falling euro currency, Obamacare/US fiscal cliff worries, more weak US economic data, earnings concerns, tech sector weakness and rising global growth fears. On the positive side, Telecom, Biotech and Hospital shares are especially strong, rising more than +1.0%. Small-cap stocks are outperforming. Oil is falling -1.6%. Major Asian indices were mostly higher, boosted by a .9% gain in Australia. Major European indices are higher, lifted by a +1.3% gain in France. The Bloomberg European Bank/Financial Services Index is rising +1.68%. The Germany sovereign cds is falling -4.8% to 97.28 bps, the France sovereign cds is down -3.2% t o182.84 bps, the Spain sovereign cds is down -3.99% to 510.0 bps, the Italy sovereign cds is falling -3.96% to 468.46 bps, the Russia sovereign cds is down -4.0% to 221.33 bps and the Brazil sovereign cds is down -4.7% to 149.83 bps. Moreover, the European Investment Grade CDS Index is down -2.3% to 162.01 bps. On the negative side, HMO, Road & Rail, Gaming, Restaurant, Computer and Oil Tanker shares are under mild pressure, falling more than -.75%. The UBS-Bloomberg Ag Spot Index is rising another +1.7%, Lumber is falling -.74% and Copper is down -.82%. The Citi Latin America Economic Surprise Index is picking up downside steam, falling another -4.4 points today to -18.6, which is the weakest since mid-August of last year.
The Spain 10y Yld is rising +.73% to 6.37%. US weekly retail sales have decelerated to a sluggish rate at +2.3%, which is the slowest since the week of April 5th of last year. US Rail/Trucking Traffic continues to soften.
The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak.
Moreover, the Citi US Economic Surprise Index has fallen back to late-Aug. levels. Lumber is -10.0% since its March 1st high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +130.0% ytd.
The CRB Commodities Index is now technically in a bear market, having declined -22.8% since May 2nd of last year. Overall, recent credit gauge improvement is meaningful, but gauges still remain at stressed levels. As well, Spanish yields are still in the danger zone. The euro currency, oil, copper and lumber remain in intermediate-term downtrends. As well, the 10Y continues to trade too well as the yield is falling -6 bps today to 1.59%.
I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly
high. While Europe appears to have kicked-the-can again, I suspect investor euphoria will be fairly short-lived. The plans will do little to boost economic growth in the region.
Massive tax hikes and spending cuts are still yet to hit in several key countries that are already in recession. Lack of competitiveness has not been addressed.
It remains unclear whether or not Germany has really agreed to anything that changes the situation substantially.
Moreover, the “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that if implemented will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion.
The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades.
Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff " and election outcome uncertainty will likely become more and more of a focus for investors as the year progresses.
Finally, the upcoming earnings season could prove more challenging than usual for big multi-nationals given US dollar strength and the precipitous declines in some key parts of the global economy during the quarter. I still believe there is too much uncertainty on the horizon to conclude a durable stock market low is in place. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on Obamacare/fiscal cliff concerns, profit-taking, rising global growth fears, more weak US economic data, tech sector weakness, earnings concerns and more shorting.
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