Wednesday, April 03, 2013

Markets Lower After Disappointing Economic Data

Stocks are lower in early trading after some weaker than expected economic data.  The March
ISM Services index came in at 54.4, which was below expectations and down from last month's level of 56.0.

Additionally, the ADP Employment report showed the addition of 158,000 private business jobs in March.  This figure was well below consensus estimates.  We get the official jobs report on Friday, and it does not always follow the direction of the ADP report.

In early trading, financial stocks are the weakest while defensive utilities are holding up best.  The tech sector is faring 2nd best as stocks like AAPL and FB buck the weakness so far.

Overnight Asian markets were mixed.  China was slightly lower after Beijing officials introduced a 20% capital gains tax on property sellers to curb rapidly rising property prices.  But Japan shot up 3% overnight after BoJ governor suggested the need for bold action and reports that aggressive asset purchases will begin in January 2014.

European markets are weaker today after the Italian Treasury said it expects the country's GDP contraction this year to be worse than last month's forecast by about 1.5%.  That's a big dropoff and isn't going to help the debt crisis among peripheral Europe.  Italy is the biggest debt market in southern Europe so investors have been holding their breath that the wheels don't fall of in that market.

The dollar is lower today but that isn't helping commodities.  Oil prices are down near $95.50 and gold prices have declined near the $1570 level.  Ag prices are higher but copper prices are lower.

The 10-year yield is lower again and has hit 2-month lows at 1.82%.  The decline in yields normally would coincide with concerns about slowing economic growth, but with the Fed doing QE purchases this indicator may be skewed.

The volatility index is higher by 5% so far to the 13.51 level.  I still expect it to get back to around the 15 level if the market continues to chop around, but we shall see.

Trading comment: With slower economic growth, no pickup in Europe, and China trying to curb property price appreciation we might finally be at the point where the stock market is due for a little more of a breather.  The constant stair-step action has been surprisingly resilient.  But prudent investors know that it can't go on indefinitely.  We also have Q2 earnings season around the corner, so the next leg in the market could be dictated by what we hear from CEOs in terms of their outlooks.

KAM Advisors has long positions in AAPL and FB


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