Wednesday, June 01, 2011

More Signs Of Economic Slowdown

The market is under selling pressure this morning, after a handful of weaker than expected economic reports has investors questioning the strength of the economic recovery.

The ISM Manufacturing Index came in below expectations at 53.5, well below last month's reading of 60.4, and the lowest level since Sept. 2009.

Also, the ADP Employment report showed that private payrolls in April increased by just 38,000, vs. consensus for 170,000 payrolls. That is quite a discrepancy, and has caused several brokerage firms (including Goldman and Credit Suisse) to lower their estimates for Friday's jobs report.

Asian markets were mixed overnight. China's manufacturing survey also eased to a nine-month low (52.0), while Australia's GDP contracted -1.2% in the first quarter, as the Queensland flooding affected the nation's economy. They expect a strong rebound in 2H11.

The economic data has pushed the 10-year yield below the 3% level, currently 2.98%. And the volatility index (VIX) has jumped +8% this morning to 16.65.

Financials are getting hit the hardest this morning, down -2.1%. Large-cap tech is actually faring quite well, with several notable names bucking the weakness so far, including: AAPL, GOOG, VMW, MELI, PCLN, APKT, and CHKP.

Oil prices are lower to $101.75, while gold prices are up a tad near $1537.

Trading comment: It looks like yesterday's strength could have been more month-end window dressing than anything, and that today reality has sunk back in. Some of the worry certainly has to do with QE2 ending in June, and the worry about the economy growing on its own, post-stimulus. But we have had the same concerns each of the last 2 summers, with the economy picking back up later in the year. I don't want to be pollyannish about this, but right now I am looking at the data as simply lumpy and uneven, as opposed to joining the camp looking for a new downturn.


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