Tuesday, October 23, 2012

Global Slowdown Hitting Corporate Results

The markets are sharply lower this morning on the heels of some further revenue disappointments among blue chip companies as well as more signs of deterioration in Spain.

After Caterpillar lowering guidance yesterday, today is was big names like Texas Instruments and DuPont.  The weak results and guidance speak to the effects of the global slowdown and that these big companies have significant enough exposure to areas like Europe and Asia that the slowdowns are now beginning to hit the top line.

The concerns about global growth are hitting economically sensitive sectors the hardest.  Among the sector ETFs, materials (XLB) and industrials (XLI) are being hit the hardest today.  Tech (XLK) is actually down the least of the sector ETFs so far.

AAPL shares had a big run yesterday, and are pausing a bit today ahead of the big event scheduled.  Investors are expecting the announcement of an iPad mini, but it will be interesting to see how they adjust pricing for their other products and if they have any other announcements today as well.

Despite a big down morning in the market, there are some companies reporting earnings whose stocks are rising today.

Stocks rising on earnings: UPS, LXK, COH, ITW, R, ARG, HOG, WHR

Stocks falling on earnings: DD, MMM, WAT, SIAL, IIVI, ST, PKX, UTX, CIT, SYT

Asian markets were mostly lower overnight.  Hong Kong was closed, and China fell 0.9%.  Citi lowered its 2012 GDP forecast for China to 7.7% from 7.9%.

In Europe, markets are broadly lower today after Moody's downgraded five regions in Spain, including Catalonia.   The Bank of Spain expects GDP to contract 0.4% in Q3.  Elsewhere, the French Business Survey fell to 85, which is the lowest level since August 2009.

The euro is also lower today relative to the dollar, and commodities are lower as well.  Oil prices have fallen back to $86 and gold prices are down to $1710.  Silver and copper prices are lower as well.

The 10-year yield is giving back come of its recent gains, falling back to 1.76%.  And we have been talking about how the volatility index (VIX) looked like it was bottoming around 14 and could be due for a spike back to the 20 level at some point.  Well it didn't take long, and today is has already spiked as high as 19.65 in early trading.

Trading comment: We have been saying recently that even thought the S&P 500 was very near its highs as recently as last week, the other major indexes weren't confirming the strength and more importantly former market leading stocks were mostly in correction.  Those factors kept us cautious and led us to believe that the market had more work to do in the form of a correction.  We have also been highlighting that sentiment had grown more bullish coming into October and that was a yellow flag.  Last week bearish sentiment started to grow again, but we know from history that sentiment usually doesn't get sufficiently bearish to help the market bottom in just a week's time.  So be patient and wait for the market to find some support and show strength before committing too much capital.

KAM Advisors has long positions in AAPL, COH, MMM, UTX


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