Tower Private Advisors
- Relief rally in stocks
- Merger mania
- Ugly economics
Capital Markets Recap
Again, this week, there was a positive divergence that suggests some upsdide for the market. On a weekly basis, the S & P 500 (and the Dow, NASDAQ, and S & P 400) finished lower on the week, yet implied volatility–the Fear Index–declined. Apparently, there isn’t increased fear as the market retreats. It’s a divergence because they should move opposite each other; i.e. that’s the normal relationship. It’s positive, because it suggests the market should move higher.
The most-awaited event of the week was the Fed‘s annual get together in Jackson Hole. Rather than bore you with excerpts from it, here are the takeaways:
- The Fed is not out of bullets . . . yet . . . ‘about three left
- Neither continued “disinflation” nor high inflation are likely
- Global central banks can not be expected to fix all that ails the global economy
Here’s the Wordle version of the Chairman’s speech:
Whatever he said the market apparently liked it, virtually rocketing north as soon as the speech was released. Hmm . . . maybe it wasn’t anything he said, but that, at long last, it was over. The speech was 5,106 words long and ran to 46 paragraphs over 407 lines. I don’t doubt that the hottest hedge funds have algorithms that provide far more insightful analysis than my word cloud above, but really–the market was up 0.7% in nine minutes.
There is a bidding war under way for 3Par, which, according to the company’s website, “is the leading global provider of utility storage, a category of highly virtualized and dynamically tiered storage arrays built for public and private cloud computing.” The two bidders–so far–are Hewlett Packard and Dell, and the former ousted its CEO over some . . . ah . . . indiscretions just three weeks ago. Here’s the unfolding action. The inset timeline is shamelessly lifted from a MarketWatch website. In addition to that generous attribution, clicking on the graphic will take you to the site.
Another blundering company–which continues to sport a nice dividend yield, which continues to rise–for the wrong reason–Intel decided that while it was getting pounded for having a less-than-rosy outlook and making the questionable McAfee acquisition, it might as well make another acquisition or two. I mean–how much worse can it get? Perhaps the trendline should be changed to an arrow.
Given the widespread gloom that pervaded markets today, it’s not surprising to hear that, in the American Association for Individual Investors (AAII) weekly survey, the respondents who were bullish totalled only 20%. That’s one of the lowest readings in the last five years. Indeed, a search of Google search trends shows that searches on the phrase “double dip” are at an all-time high, as you can see in the chart below.
The profusion of negative headlines–
“U.S. Economy: Durables, Housing Signal Recession Risk”
“Debt Rally Cracking as Double-Dip Fears Haunt: Credit Markets“
–doesn’t help, of course, but it’s at odds with a hot bet of the hedge funds: commodities. According to Bloomberg, they have their highest allocations to commodities“since 2008.” Commodities don’t do well in any form of recession. Either the hedgies are missing something or the general public is.
Take a quick poll for me, please. I’ll share the results next week. Immediately the poll below is a look at stock market seasonality, compiled since 1928. It shows a bottom in the September/October period, followed by a strong finish into the end of the year. What do you think?
We had to wait until Thursday to get the first bid of positive economic news. Until then it had been dreadful. The first bomb that fell was the (-)27.2% drop in Existing Home Sales for July. Everyone who could fog a mirror knew that the First Time Homebuyers Tax Credit was a big prop to housing sales in recent months, but no one, not even the most pessimistic of the smartest guys in the room, the economists, thought it would be as bad as it turned out. They thought the drop would be -13.4%; the worst expected -26.3%. The next day New Home Sales for July were released. While they had risen by 23.6% in June, they fell by (-)12.4% in July. The Home Price Index, the measure with the most-encompassing view of U.S. home prices, showed that home prices in June fell by (-)0.3% in June. Economists expected the index to have ticked up by 0.1%, and the revised May data was +0.4%.
Durable Goods Orders were announced, and they were sliced and diced six ways to Sunday (whatever that means), but the message was the same: yuck. Here are the various ways in which the orders are reported.
- Headline: +0.3% vs. economist consensus of +3.0%
- Excluding transportation orders: -3.8% vs. consensus of 0.5%
- Capital goods orders excl. non-defense aircraft: -8.0%
The first of two good pieces of news came in the form of Initial Jobless Claims. They fell by (-)30,000 from last week to 473,000 from an upwardly revised 504,000. That was the first decline in four weeks. The four-week moving average continued to rise but at a slower pace.
The second bit came in the form of less-bad-than-expected Q2 GDP. The first release showed growth of 2.4%, and economists expected 1.4% for the second iteration. Instead, it came at 1.6% on the strength of stronger consumer spending. (-)0.6% of the decline came from worse-than-earlier-estimated Net Exports (exports less imports). According to Miller Tabak that was the second worst showing for net exports since 1947.
Plenty to shake up markets next week. There’s nothing to suggest any recent, negative trends will be reversed. All other reports will pale in comparison to Friday’s Nonfarm Payrolls report.
Key indicators to watch
- Personal Income, Spending, and Saving (July) – Monday
- CaseShiller Home Price Index (June) – Tuesday
- Chicago Purchasing Manager index
- Minutes of August 10 FOMC meeting – Tuesday
- ISM Manufacturing (August) – Wednesday
- Initial Jobless Claims (weekly) – Thursday
- Pending Home Sales (July) – Thursday
- Nonfarm Payrolls (August) – Friday – Consensus: loss of 100,000 jobs; gain of 10,000 mfg. jobs
- Unemployment Rate (same report) - Consensus: 9.6%; previous 9.5%
- Average Hours Worked (same report)
- ISM Non-manufacturing (August) – Friday
Graig P. Stettner, CFA, CMT
Vice President & Portfolio Manager
Tower Private Advisors