Friday, January 11, 2013

Japan Launches Larger Than Expected Stimulus Program

The markets are slightly lower in early trading, though not by much.  The action this week has been pretty constructive this week with the S&P 500 closing at multi-year closing highs yesterday.

Overnight markets were mixed in Asia, with Japan rallying +1.4% after the govt. launched a 10.3 trillion Yen stimulus package that they hope will boost GDP by 2.0%.  China closed on the flip side with a large -1.8% decline on the heels of a hotter than expected CPI reading.  China's CPI rose 2.5%, which suggests higher inflation and could make further stimulus measures more difficult.

European markets are also mixed after some weak economic data.  Spain's industrial production fell -7.2%.  And in the UK industrial production declined -2.4%.  JPMorgan lowered Germany's Q4 GDP forecast and now expects a -2.0% contraction.  That would drag down overall GDP for the Eurozone as well.

In earnings news, INFY surprised the Street with a rare earnings beat and also raised guidance.  That is causing the stock to spike +18% higher so far, and is also boosting one of our portfolio companies CTSH (+4%).

Wells Fargo (WFC) topped earnings estimates, but lower net interest margins is leading to some profit taking and the stock is 1% lower this today.

And Chevron (CVX) raised its guidance saying earnings will be above consensus forecasts.

The euro is bouncing again and pushing the dollar index lower.  This usually boost commodities, but they are still lower today.  Oil prices are lower to $93 and gold prices are falling back to $1659.  I suspect commodities would be down more were it not for the weakness in the dollar.  Some of this might have to do with the concerns today about China, as materials stocks are trading lower as well.

The 10-year yield is firm at 1.90%.  And the VIX is only fractionally higher still lingering near the $13.55 level.  Portfolio insurance is on sale, and it might not be a bad time now or in the near future to buy some put protection on portfolios for those that trade options.

Trading comment: The market did a good job this week not giving back any of last week's outsized gains.  But the S&P 500 is also running into resistance around the 1470 level.  We still expect some backing and filling as the market consolidates around these levels.  Ultimately we are looking for another push higher in the markets before see a more pronounced pullback, and we pretty much always get a Q1 correction at some point.  Additionally, more growth stocks are breaking to new highs so that is where we want to focus.  One caveat is to tread carefully ahead of earnings, but those stocks that show positive reactions to solid earnings and guidance should continue to do well.

KAM has long positions in CTSH and WFC


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