Thursday, June 28, 2012

Waiting on EU Headlines

The market is lower this morning on a pullback following 2 straight days of gains, as well as uncertainty ahead of the EU summit.  Most of the headlines this morning have centered around the Supreme Court decision about Obamacare.  The court upheld the plan, but said the individual mandate could be upheld as a tax not a penalty.  Hospital stocks have rallied while insurance stocks are mostly lower.

While the healthcare industry is the most affected by this ruling, I don't think it has sweeping meaning for the overall market.  It does add to the element of uncertainty going forward, which is never good for the markets.  But the bigger picture right now is still the EU and whether or not Germany acquiesces on its stance and becomes more flexible about shared debt liabilities for the eurozone.

In corporate news, there are rumors that the losses at JPMorgan could be larger than initially estimated.  JPM stock is lower on the news, and weighing on the financial sector. 

In economic news, final estimates for Q1 GDP held steady at 1.9%.  I'll take this as a win for the bulls considering many thought we could get another downward revision to these figures.  Of course, this is still rear-view mirror and the big question is what Q2 GDP will look like and more importantly how much of a slowdown will 2H12 see. 

Asian markets were mixed overnight, while Europe is lower this morning.  The dollar is higher and that is weighing on commodities.  Oil prices are lower to $78.50 and gold prices are down near $1555.

A flight to safety has bid up bond prices again today and pushed the 10-year yield back below that 1.60% support level that has held for most of June.  The 10-yr yield is currently 1.57%.

As for the VIX, it has spiked higher this morning, back above the 20 level to 21 currently.

Trading comment: No change to our near-term cautious stance and call to remain defensive.  The 2-day bounce we saw this week appears to just have been a relief rally aided by window dressing.  Now we have to see if the selling picks up again and how the market reacts to headlines out of the EU summit and the potential for disappointment.  The SPX is still below its 50-day average (which is now downward sloping) which is an intermediate-term indicator that a new uptrend is not yet at hand.  As such, patience is key.  We are still holding many of our defensive, dividend stocks but haven't added to any growth stocks lately.  And asset allocation still favors a larger weighting toward fixed income for the time being.


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