Stocks Mildly Weak In Early Trading
It looks like a small bout of profit taking in the opening hours of trading, after some mildly weak economic reports, but mostly due to the fact that the market has become overbought after its continued stairstep rally.
Energy and materials are the weakest sectors so far, as the dollar bounces and commodities get hit. Oil prices are down nearly $2 around $66.50, and gold is slightly lower also. Biotechs are the only group bucking the weakness so far, as well as a few tech names.
Fed Chairman Bernanke is testifying before Congress this morning. I will post his comments in a separate post, but he is basically talking about the outlook for the economy (sees more job losses), inflation (expects it to fall over the next year), as well as updates on the TARP and other Fed plans in their alphabet soup (PPIP, TALF, etf).
In economic news, the ISM Services Index came in at 44.0, a bit shy of expectations, but up from 43.7 in April. Factory orders increased +0.7% vs. a -1.9% drop in March. And the ADP jobs report showed 532,000 job losses in May, only slightly less than in April. On Friday, we will get the govt. jobs report.
Asian markets were mixed overnight; the dollar is higher, and commodities are lower; the 10-year yield is dipping to 3.57%; and the VIX is up +3.4% back over the 30 level to 30.65.
Trading comment: I expect a mild pullback from the overbought condition, but I think SPX 925 should offer initial support. I still maintain my thesis that most managers remain underinvested, and that performance anxiety will lead the a continued stairstep rally in the market into quarter-end. Could that lead to a July top? Possibly, but let's not get ahead of ourselves.
Raymond James' Jeff Saut confirmed my thesis in his weekly letter when he said that in his dozens of meetings with portfolio managers across Europe, most of them remain underweight equities, and that pressure from their bosses/boards could lead them to increase their weightings into quarter end.