Wednesday, February 20, 2008

Inflation Concerns Weigh On Market Early

The market is weak out of the gate due to some slightly elevated readings on inflation today. Core CPI rose +0.3% m/m vs. expectations of +0.2%. This is worrisome, as the Fed does not like to lower rates when inflation is rising. But weaker economic growth usually leads to declining inflation.

Telecoms are under pressure again today after AT&T and Verizon (VZ) announced an unlimited wireless plan for $99.99. I think this might spur a lot of people to simply use wireless at home and get rid of their landlines. The phone companies need to make a wireless phone for the home that looks and works like a normal cordless phone.

The brokers are bucking this morning's weakness, and Goldman Sachs (GS) is nicely higher. This is the opposite of what we saw yesterday, so maybe it will work in reverse today. That is, early strength in the brokers could be a sign that the markets will firm into the close.

Given the inflation news, I would not have been surprised to see the market down more. If stocks can pair their losses into the close, it would lead me to believe that maybe stocks are washed out here, and there isn't much downside momentum left in the market.

Tech is mixed after strong reports from both HPQ and Garmin (GRMN). The semis are up more than +1.0%. Solar stocks are lower after Suntech (STP) reported disappointing earnings.

Asian was down -2-3% overnight, led by a decline in Japan. Oil is off its $100 high, trading above $98. And the 10-year yield is up slightly to 3.88%. I don't want to see yields continue higher, because we need low rates to help the housing situation.

long GS


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