Wednesday, August 08, 2012

Is The Market Pricing In More Stimulus?

The markets in the US are slightly lower in early trade following three solid up days.  Overnight, markets in Asia were slightly higher again and the hopes for more stimulus persist.

In Europe markets are mostly lower this morning.  Bank of England governor King said the British economy faces headwinds, but further interest rate cuts are not the solution.

In corporate news, Dean Foods (DF) shares are more than 35% higher after the company planned an IPO of its organic food WhiteWave Foods division.

In earnings news, Express Scripts (ESRX) is nicely higher after beating expectations and raising guidance.  Priceline (PCLN) is on the other side as its shares are getting hit hard after lower forward guidance (although they did beat earnings).

The dollar is higher today, but it is not weighing on commodities.  Gold prices are a bit higher to $1616, and oil prices are up again topping $94.15.

The 10-year yield is holding its recent gains and trading near 1.63%.  And the VIX is up a tad to 16.05.  It appears to be finding some support near this 16 level, and if prior patterns hold we should expect a down day in the market to coincide with a pop in the VIX at some point.

Trading comment: The market seems to be pricing in something good, I'm just not sure what.  Forward earnings estimates don't seem to be going up.  In fact, they are going down slightly.  The economy isn't exactly heating up, although we did have a good jobs report last Friday.  Which brings us back to the question of whether the market is pricing in more stimulus?  We are in that odd situation where the weak economy can be applauded by stock investors because it increases the probability for more QE.  And recent comments out of China suggest they are planning more stimulus as well.  I don't like to fight the price action as much as the next person, I just find it disconcerting that we still have big problems in Europe as well as the upcoming elections and fiscal cliff in the US.

KAM Advisors has long positions in ESRX, PCLN, and DF bonds

1 Comments:

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