Thursday, May 31, 2012

Disappointing Economic Data Weighs On Stocks

The market is lower in early trading on many of the same concerns as well as a fresh dose of economic data that came in below expectations.

The ADP Employment report showed private payrolls increased by 133,000 during May, but that was below forecasts for 157,000.  The ADP report hasn't been the best indicator of the govt. jobs report on Friday, but forecasts seem to be coming down for that report as well.

A revised reading for Q1 GDP came in at +1.9%, which is below the +2.2% preliminary reading.  Separately, the Chicago PMI index fell to 52.7 in May from 56.2 last month.

In corporate news, many retailers are reporting same-store sales figures for last month.  Of the reports I've seen, I'd say that more retailers beat expectations than fell short, but the reactions in the underlying stocks are mixed.

Stocks rising on SSS reports: COST, ZUMZ, SKS, TGT, TJX, ROST

Stocks falling on SSS reports: KSS, JWN, GPS, BKE

Among the sector ETFs, energy stocks are down the most again while defensive consumer staples and utilities are down the least.  But every sector is lower this morning. 

The dollar is higher again while commodities are moving lower.  Gold prices are down near $1560, but were able to reverse higher during yesterday's session.  Oil prices are lower to $86.50.  Has anyone started to see lower gas prices yet?

The 10-year yield is a disaster, breaking to new generational lows at 1.54%.  The only silver lining I suppose could be another wave of refis, but I would think most people have already refi'd.

As for the VIX, it has now broken out to new monthly highs and is currently +5% higher to 25.30.  So fear is building in the market.  The VIX hasn't been at these levels since December 2011.

Trading comment: The SPX is testing the 1300 level, which is an important round number, but the big line in the sand is SPX 1292.  That markets the lows from a couple of weeks ago from where the market bounced.  A break of those levels opens the door to further downside.  Bearish sentiment is on the rise, but not yet at extreme levels.  If SPX 1292 gives way, I would expect selling to accelerate and for pessimism in the sentiment indicators to spike.  That could offer a better setup for a tradeable bottom.  But we are not there yet so I want to stay defensive for now.


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