Monday, July 09, 2012

Monday Morning Musings

Back in the saddle after some time away last week for the holiday.  Re-entry is always challenging, but time to shake off the cobwebs and get down to business.  The market has opened in slightly weak trading following Friday's disappointing jobs numbers and cautious comments out of China.

Last week's jobs numbers further support the thesis of a slowing economy.  I haven't done a full roundup yet of the other econ data that came out, but the question at this juncture isn't if the US is going to slow down but rather how much?  Also, how much of this slow growth environment is priced in to earnings?

Asian markets were down overnight, led by a -2.4% drop in China.  Premier Wen Jiabao warned of the potential for "huge downward pressure" on China's economy, citing weaker demand out of Europe.  Chinese banks were also under pressure as traders price in more interest rate cuts by the PBOC. 

Europe's markets are also lower today as peripheral yields are on the rise again, and yields in Spain top the 7.0% level again.  Euro finance ministers meet today in Brussels to discuss the ongoing issues.

Merger Monday came thru again today with a big merger between Wellpoint (WLP) and Amerigroup (AGP) with WLP paying $92 per share for the latter.  Also, Thomson Reuters (TRI) will acquire FX Alliance (FX) for $22 per share.

The highly anticipated Q2 earnings season kicks off today with Alcoa reporting after the close.  Alcoa isn't that much of a market mover, and will likely make cautions comments given slowing global markets and weak commodity prices.  But there are some big heavyweights (GOOG, JPM, WFC, etc) reporting later this week which could produce stronger reactions.  Overall, I think that the upcoming earnings season will produce more disappointments that upside surprises with a lot of cautious guidance. 

Trading comment: The S&P 500 continues to pullback from its recent rally to the 1375 level.  The SPX is still above its 50-day average support, which comes into play around 1338 as of now.  We are marinating our conservative portfolio postures as we enter the summer doldrums.  If the market pulled back enough I would probably add some stock exposure for a trade, but at this juncture I think the market could be fairly rangebound for the near-term.


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