Tuesday, August 06, 2013

Trade Deficit Narrows, Will Boost GDP Estimates

The markets are lower in early trading.  The Dow is down 100 points, but it's still early in the day.  As we have seen repeatedly every time the market is lower in the morning, dip buyers surface and the market recoups most of its decline by the close.  We shall see if that pattern holds true again today.

The trade deficit for June narrowed to $34.2 billion.  This is the smallest deficit since October 2009.  And the big downward surprise vs. estimates means that 2Q GDP estimates will surely be revised higher, somewhere above 2.0%.

There are a few companies that reported earnings this morning and are seeing their stocks trade higher, including CTSH, FOSL, and KORS.  On the downside are CVS and AEO, to name a couple.

Asian markets were mixed overnight.  The Reserve Bank of Australia cut its key interest rate to 2.50% from 2.75%.  In China, the Asia Development Bank said GDP over the next 2 years could fall somewhere in the 7.0% range, and it will likely lower its current 7.7% forecasts.

Europe's markets are little changed.  Britain's Halifax house price index rose 0.9%.  And Italy reported a -0.2% contraction in GDP.

Commodities are mostly lower.  Gold prices are sagging to $1286.  Oil prices are also lower near $105.40.  Copper prices are bucking the trend and trading higher.

The yield on the 1-yr T-note is a bit higher to 2.65%.

Yesterday we said the VIX was likely to find a bottom somewhere near 12.  It closed a bit below that level, but today is spiking 8% to 12.75.

Trading comment: We will likely be patient today to see if dip buyers emerge again or if the market will close near its lows for once.  A pullback from current levels would be healthy, and should not be feared.  We continue to look for spots to add to stocks that recently reported strong earnings but have pulled back since.  We recently had a large wave of bonds called providing fresh cash to portfolios.  At the margin, even good dividend paying stocks will likely outperform bonds for the next few years, so we are looking for spots to continue to tweak our asset allocations in favor of equities.

KAM Advisors has long positions in CTSH


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