Monday Morning Musings

Markets are lower this morning amid little progress in the debt ceiling debates.  After the Senate passed a stopgap funding bill without a provision to defund Obamacare, the House countered by adding a one-year Obamacare delay to the funding bill.

With a midnight shutdown looming, we should hear lots of back and forth today as the story unfolds.  It would be the first govt. shutdown in 17 years if it does occur.

Overnight Asian markets were mostly lower.  China's HSBC manuf. PMI slipped to 50.2 from 51.2.  Markets in China will be closed for the rest of the week for Golden Week.

Turmoil in Europe is also weighing on their markets.  In Italy, the govt. has nearly collapsed after PDL leader Silvio Berlusconi withdrew from the coalition along with several of his party's key ministers.  Elsewhere the head of one of the Greek parties was arrested and charged with belonging to a criminal organization.

Despite the global turmoil, we are not seeing the traditional flight to safety.  Treasury prices are a bit lower and pushing yields on the 10-year Note higher to 2.63%.  Gold prices are also weaker today near $1327.  Oil prices are also lower to $101.65.

But the volatility index has spiked higher.  Last week when the VIX was hovering around 14 we said we would not be surprised to see a spike higher in the near-term.  Today the VIX is up 8% to 16.75 and was above 17 early in today's session.

Trading comment: We doubt that all of the shenanigans out of Washington will dent the fundamental improvement in the global economy that have been driving stocks higher this year.  So we want to use this hiccup in investor sentiment to add to equities with the premise that stocks will still be higher at year-end than they are today.  The S&P 500 is testing its 50-day average today also, which is often a support level where we see buyers step up.

Debt Ceiling Debate Should Heat Up

Remember how annoying it was last year when we had all of the back and forth squabbling about the debt ceiling debate?  It also contributed to the US having their debt rating questioned, as it shows dysfunction in the govt. 

But we should probably get ready for another round of it.  Treasury Sec. Lew said that the debt limit will be reached October 17th.  So the rhetoric and gamesmanship is set to heat up and that will likely mean additional volatility for the market.

Speaking of volatility, right now the VIX is still very low at just below 14.  But as we get into this debt ceiling debate I would not be surprised to see another spike back above 15.

In economic news, durable goods were disappointing at 0.1%, even if that is up from last month's big decline of -8.1%.  New home sales were again strong at a rate of 421,000 in August, which was up from 390,000 in July.

Asian markets ended mixed.  Short-term SHIBOR rates rose again in China, with the 2-week rate rising another 38 bps to 5.18%.  Europe's markets trade near their lows.  The CEO of Greece's Piraeus Bank told CNBC that non-performing loans are on the rise and that the bank will need additional loss provisions this quarter.

The 10-year yield is down slightly to 2.64%.  That's a pretty far cry from those who were looking for 3.25% just a couple weeks ago.

Oil and gold prices are higher today with oil up a bit to $103.35 and gold prices rising to $1332.

Trading comment: The recent 4-day pullback has been fairly shallow, but we continue to use it as an opportunity to add to the equity side of portfolios.  We are also adding to our interest rate hedges, as bond yields have come down a lot since the 'no taper' decision by the Fed, but with the economy improving we think its just a matter of time before we finally see the 10-year yield climb back above the 3.0% level.

Will Stocks Bounce After 3-day Slide?

The markets started out lower this morning but have since rallied back into positive territory.  Stocks have been on the decline for the last 3 sessions after making new highs last week.  This year we have seen stocks bounce after short declines, so 3 days might be about all we get on the downside before we see a bounce.

Housing data was positive today with the Case-Shiller 20-city index spiking 12.4% in July.  And the FHFA Housing Price Index rose 1.0%.  But it will be interesting to see how the rise in interest rates effects the Case-Shiller figures when we get August and September numbers.

Also, consumer confidence for September came in at 79.7, which is down from the prior month's reading of 81.8.

Asian markets were lower across the board overnight.  China's SHIBOR rates were on the rise again, with the 2-week rate hitting 4.80%.  The PBOC stepped in to provide liquidity by injecting CNY88 billion into the system.  European markets trade with modest gains today.

The 10-year yield is sliding further, falling below its 50-day moving average to 2.67%.

Commodity prices are weaker today with oil prices sliding to $102.65 and gold prices weaker near $1315.

The volatility index spiked higher yesterday but today is back down below the 14 level to 13.95.  We have said for most of the year that when the VIX is below 15 the markets usually stay in rally mode.

Trading comment: We have been using the pullback in the market the last couple days to put cash to work mostly in equities.  There are also some closed-end bond funds that have been pretty beaten up that we have added to modestly.  But mostly we are looking to add to stocks that have been making new highs recently and are pulling back along with the market.  Big banks seem to have taken a back seat in the leadership arena but select tech, insurance, biotech and industrials offer opportunities.

Monday Morning Musings

Markets are trading lower in early trade, following weakness on Friday's session.  There isn't a whole lot of market moving news, although the banking sector is leading the downside after the Financial Times reported that Citi suffered a large decline last quarter in trading revenue.

Apple shares are nicely higher after the company reaffirmed that revenues will be at the high end of estimates due to strong demand for new iPhones.

Asian markets were mixed overnight.  Japan was closed for a holiday, but China was higher after the HSBC manuf. PMI rose to 51.2 from 50.1.  This marks the highest reading since April.  This may have also helped push short-term rates higher in China, with SHIBOR rates spiking.

Europe's markets are lower today.  Eurozone manuf. PMI slipped to 51.1 from 51.4, but the services PMI rose to 52.1 from 50.7.  The same dynamic was seen in Germany and France.

Bond yields continue to drift lower with the 10-year yield fading back to 2.70% this morning.  Fed gov Dudley said that the labor market and economy didn't meet their criteria for tapering as of the last FOMC meeting.  It almost seems as if the Fed was surprised by the sharp rise in yields and has since been jawboning yields back down.

Commodities are also most lower today, with gold prices down a bit near $1328 and oil prices sliding back to $103.60.

The volatility index got down to very low levels Friday below the 13 mark, but today they are spiking higher and up more than 10% to back above the 14.50 level.

Trading comment: Markets had reached overbought levels again last week after being up many days in a row.  So the multi-day pullback we have seen should be construed as healthy.  We suspect that this pullback will again be of the mild variety like many of the last ones.  The patter of higher lows and higher highs remains intact.  Right now the S&P 500 is hitting the 1700 level, and the 50-day average comes into play around 1680.  We said last week we wanted to use weakness to put some extra cash back to work in stocks so that is what we will be looking to do around these levels.

Hurry Up And Wait

All eyes are on the FOMC today where it is expected that Chairman Bernanke will announce that the Fed will reduce the size of its asset purchases by $10-15 billion.  Interest rates have been on the rise since chatter started making the rounds about said 'taper', and today the 10-year yield is up a little more to 2.88%.  But we have yet to top the 3.0% level.

It's hard to tell if the taper has been priced in and bond yields have put in short-term tops or if bonds will continue to sell off post-taper and yields continue to creep higher.

Volume will likely run extremely light until the FOMC announcement at 2pm EST and then we should see a burst of trading and volatility into the close.  So get ready.

In economic news, housing starts hit an annualized rate of 891,000 during August.  This is slightly above last month's revised figures, which were revised down from 896k to 883k.  Building permits also came in below expectations.

Asian markets were mixed overnight.  China's home prices rose 8.3% last month.  European markets are modestly higher.  The minutes from the latest Bank of England policy meeting showed unanimous vote to leave their purchasing program unchanged.

Oil prices are higher today near $106.55 while gold prices are weaker falling back to the $1300 level. 

As for the volatility index, it is slightly lower still hovering in that 14.45 range.

Trading comment: No change to our recent outlook.  We continue to use weakness to pick spots to add to equity exposure.  Despite all the worries about the taper, the debt ceiling, Syria, etc. the stock market has again found its footing and is knocking on the door of new highs.  It has been a frustrating year for those looking for the big 10%-plus corrections.  But price is the final arbiter, and in this business its okay to be wrong but its not okay to stay wrong.

Markets Remain In Rally Mode

Stocks are higher again in early trading after closing mixed yesterday.  The Dow was nicely higher yesterday while the Nasdaq was lower due to losses in AAPL.

Investors remain in a buying mood, despite anxiety over tomorrow's FOMC meeting where it is expected that Bernanke will announce a reduction in the Fed's asset purchases by $10-15 billion.  Bernanke seems anxious to get the taper started while the market expects it, despite the fact that inflation continues to run below their target.  Core CPI over the last 12 months is up 1.8%.

In economic news, the September NAHB Housing Index was unchanged at 58.

Asian markets were lower overnight.  Hong Kong's unemployment held steady at 3.3%.  And the minutes from the Reserve Bank of Australia suggested the central bank will continue easing if the incoming data supports it.

Europe is also lower this morning.  Germany's ZEW economic sentiment index rose to 49.6 from 42.0.  And in Germany Chancellor Merkel said that a decision for another aid package to Greece will not be made until after the New Year.

The dollar is flat today and commodities are mixed.  Oil prices are weaker near $105.82.  Gold prices are down a bit to $1309.  But silver and copper prices are higher.

The 10-year yield is down slightly to 2.86%.  It will be interesting to see the bond market's reaction tomorrow to any announced taper and how much of it is already priced in at this point.

As for the volatility index, it continues to trade below the 15 level at 14.39 today, unchanged so far.

Trading comment: Despite being short-term overbought the market has not pulled back much recently.  This seems to be how things have gone this year.  As soon as the market emerges from shallow pullbacks, it rises quickly and doesn't give a lot of time to think about picking your spots.  We put some money back to work recently and continue to look for stocks that are emerging from consolidations and look ready to stage another advance.  Lately we have added to select financials and industrials and dipped our toes in slightly to some beaten up REITs.

Monday Morning Musings

Markets are nicely higher on improved investor sentiment after news came out that Larry Summers pulled his name from the pool of candidates for the Federal Reserve Chairman.  Mr. Summers had been seen as the more hawkish candidate, so his exit leaves Janet Yellen as the favorite and Ms. Yellen is considered more likely to carry out the Fed's current Fed policy.

There was also some geopolitical news over the weekend that the US and Russia have agreed to dismantle Syria's chemical weapons by the middle of next year.  Oil prices are lower near $106.87 on that news.

In economic news, the Empire Manuf. index for September came in at 6.3, which was below expectations and down from last month's reading of 8.2.

Asian markets were mixed overnight with Japan closed for a holiday.  But the approval rating of Japan's PM cabinet increased to 61.8% from 57.7%.  Guess folks like QE over there.

Europe's markets are higher this morning.  Italy's trade surplus expanded last month.

The dollar is lower today and helping to boost gold a little.  The yellow metal is up slightly to $1318.

The 10-year yield is also lower today to 2.80%.  This is probably due to a relief rally in Treasuries on the odds increase of Yellen taking over for Bernanke.  But we still think 3.0% is in the cards in the near future.

Trading comment: Last week we said the action in the major indexes likely signaled the correction had run its course and the fact that the S&P 500 had recaptured its 50-day put the offense back on the field and made new highs a possibility.  Today's buying enthusiasm has taken the SPX up to 1703.  And SPX 1710 would be a new high for the year.  So while this morning might not be the best time to pay up for stocks, we continue to look for weakness to use for buying as well as fresh breakouts in stocks that have been consolidating in recent weeks.

Stocks Getting To Overbought Levels

Stocks are mostly higher in early trading, but just by a fraction.  The market hasn't had a down day in roughly seven session, which is a pretty long streak.  That has moved the indexes up into overbought territory.  So now the question is what type of pullback will we see, if any?

Some odd economic data this morning.  The headline jobless claims was 292,000.  This was the first time jobless claims dropped below 300k since March 2006.  But the DOL said there were computer problems, so basically the figures aren't correct.  So the DOL doesn't believe this week's drop in jobless claims signals a change in the labor market.  Odd.

Asian markets ended mixed.  Japan's PM has decided to raise the sales tax in April 2014.  New Zealand and S. Korea both held rates unchanged at 2.50%, as expected.

Europe is mostly lower.  Eurozone industrial production fell -1.5% last month.  Greek unemployment hit a new record high of 27.9%.  An ECB member said they believe current policies are appropriate, but they have talked about another LTRO.

The dollar is lower today but that is not helping precious metals.  Gold prices are down big to $1331.  Silver prices are down nearly 4%.  But oil prices are up a bit near $108.18.

The 10-year yield is easing back a bit to 2.88%.  And the volatility index is flat near 13.90.

Trading comment: We have started looking for individual situations to put more cash to work.  Most of these are stocks that have had mild corrections and look ready to resume their uptrends.  Ditto some of the ETFs.  We are trying not to add to stocks that are still extended on the charts.  With the market reaching overbought territory, we should see some sort of pullback in the near-term and will look to use any weakness for opportunistic buys.

Investors Disappointed With Apple

Markets are slightly lower in early trading, taking a breather after a few strong days.  Shares of AAPL are down more than 5% despite the company showcasing 2 new phones yesterday.  Investors question the pricing of the new low-priced phone and how well it will compete vs. Samsung in emerging markets.  But mostly investors are disappointed that there was no announcement of a deal with China Mobile (700 million subscribers) announced.

Last night Obama made a case for a targeted strike against Syria, but also indicated the Russian proposal to put Syrian weapons under international control will be considered.

There wasn't much in the way of market moving economic data today. 

Asian markets were mixed overnight.  Malaysian industrial production rose 7.6%.  S. Korea's unemployment rate ticked down to 3.1%.

Europe's markets are also mixed.  The ECB said its clear they are not at the end of the Greek problem and that another bailout is likely.

The dollar is a bit weaker today.  Commodities are mixed.  Oil prices are flat near $107, gold prices are a bit weak around $1631, and silver and copper prices are higher.

The 10-year yield is about even at 2.96%.  And the volatility index is slightly lower and still below the 15 level once again to 14.41.  When the VIX has been below 15 it has generally coincided with stocks in rally mode and making new highs.

Trading comment: We have been talking about buying weakness now that it appears the markets correction may have run its course.  So even though stocks are mostly mixed today, there are plenty that are trading lower and we want to look to use the weakness to add to the equity side of our portfolios.

Flight To Safety Trade Reversing

The market is higher again in early trading, after a surprisingly strong rally yesterday.  The fears over Syria continue to diminish  as the country has agreed to put its chemical weapons under international control.

You can see the fear coming out of the market by gold selling off ($1362), oil trading lower ($107), and Treasuries selling off, pushing the 10-year yield up to 2.96%.  In addition, money continues to flow back into stocks, with the Dow up over 100 points so far.

Speaking of the Dow, Dow Jones reported that 3 new stocks will be added to the DJIA: Goldman Sachs (GS), Nike (NKE) and Visa (V).  They will replace Alcoa (AA), Bank of America (BAC) and Hewlett Packard.  I like adding NKE and V, but am a bit surprised by adding GS and removing BAC.  BAC seems more representative of American financials.

Asian markets were higher across the board.  China posted strong data with retail sales +13.4%, industrial production +10.4%, and fixed asset investment +20.3%.  Reports out of Japan indicated the PM's cabinet is expected to raise their economic assessment for September.

Europe is also trading higher.  The European Parliament postponed its vote on a banking union to Thursday.  Italian GDP was revised lower to -0.3% from -0.2%.

We recently commented on the trading range of the volatility index (VIX).  Today the VIX is down -5.3% and trying to break below the 15 level.  So far this year stocks have enjoyed nice rallies when the VIX stayed under 15.

Trading comment: The S&P 500 is moving further above its 50-day moving average today.  That should embolden investors and put the offense back on the field.  Despite September having the reputation as the worst month for stocks historically, we know that the bull market loves to climb a wall of worry and that with the SPX back above its 50-day, the VIX moving below 15, and Syrian fears subsiding that we could see the major indexes make new highs in the near future.  So its time to look to put cash back to work, and buy any dips that surface near term.

Monday Morning Musings

Markets are higher in early trading following strength in Asian overnight.  There isn't much else in the way of market moving data this morning.  There are no economic reports to speak of.  There was one M&A deal, with Moles (MOLX) agreeing to be acquired by Koch Industries for a 31% premium to Friday's closing price.

Asian markets were higher overnight led by a 2.5% pop in Japan after Tokyo won the bid for the 2020 Olympics.  Japan's Q2 GDP was also revised higher to 0.9% from 0.6%.  And positive data out of China came in the form of a better than expected trade surplus of $28 billion.

Europe's markets are mostly lower as political turmoil continues in Italy with Berlusconi.  The Eurozone Sentix investor confidence index rose to 6.5 from -4.9 previously.

Bond yields are easing back further with the 10-year yield lower to 2.90%.  This is giving some breathing room to interest rate-sensitive sectors.

The dollar is lower this morning but commodities are mixed.  Oil prices are lower to $109.60 as the debate over Syria drags on.  Gold prices are up a little near $1389.  Copper prices are higher but silver prices are lower.

Despite the gains in stocks this morning the volatility index is actually higher to 15.93.  I would expect to see it lower on a day like today.  Sometimes when the VIX trades like this it means traders are anticipating weakness to surface later in the day.

Trading comment: We have been trying to remain patient while the S&P 500 continued to trade below its 50-day moving average.  This type of defensiveness often keeps one safe from unforeseen market volatility and prolonged market downtrends.  The SPX is still a few points below its key moving average, so too early to sound the all-clear.  But it is certainly trying to regain those levels.  The S&P 400 midcap index is also still below its 50-day average.  So while there are individual situations where we would be willing to commit cash, we haven't started putting money back to work on a wide scale just yet.

The Putin Swoon

The markets opened higher after a softer jobs report sparked hopes that the Fed would hold off on tapering due to the economy not strengthening as much as previously thought.

But soon after the open came comments from Putin that Russia will assist Syria in the event of an attack.  This shouldn't be a big surprise as Russia has been providing them with weapons for years, but the notion that Russia would join Syria in a fight vs. the US spooked the market.

The Dow swooned 100 points fairly quickly.  But as Obama's speech in St. Petersburgh got underway the fear in the markets subsided and stocks slowly reversed their losses and clawed their way back to positive territory.

So it has already been a pretty volatile day in the first hour of trading.  Still a lot of time left today, and volume will likely be light again.  So we will have to see if the market can hold onto these gains into the close.

The August payrolls report showed an increase of 169,000 jobs, which was below estimates of nearly 180,000.  Moreover, July payrolls were revised sharply lower to 104,000 from 162,000.  The unemployment rate did tick lower to 7.3% from 7.4%, but this isn't what it seems.  The drop was actually once again the result of a decline in the labor force participation rate.  At 63.2% this rate is now the lowest since August 1978. 

Trading comment: Confusing action so far today, but it's how the market closes that counts.  The S&P 500 is still about 5 points below its overhead 50-day average.  So its still too early to start getting bullish again as we will have to wait until next week to see if this latest market correction has basically run its course of if there is still some more consolidation in store for the equity markets.  Talk should also heat up about the potential for a Fed taper at its upcoming meeting.

Economic Data Looks Pretty Good

Markets are slightly higher in early trading.  There were several economic reports this morning, most of which came in better than expected.  One of the reactions to the positive data has been another spike higher in bond yields.

The 10-year yield is hitting new highs at 2.98%.  This is putting pressure on interest rate-sensitive stocks like REITs and utilities, but overall the market is higher despite the spike in yields.

The ADP Employment Report showed the private sector added 176,000 jobs, which was basically in-line with estimates.  Q2 productivity was revised higher to 2.3% from 0.9% while unit labor costs were revised down to 0.0% from 1.4%.  Both of those are very positive for corporate profits.

And the August ISM Services index rose to 58.6 from 56.0 in July.  Services represent nearly 70% of our GDP, so this is another good sign for the economy.

Asian markets were mixed overnight.  The Bank of Japan maintained its current monetary stance while upgrading its economic assessment.  S. Korean GDP rose 2.3%.

Europe's markets are slightly higher after the ECB meeting.  The ECB left rates unchanged at 0.5%.  The euro is lower today in response.  The Bank of England also made no changes to monetary policy.

The VIX is down slightly to 15.77 currently.  For the last year or so, a move below 15 in the VIX has coincided with a rally in equities.

Trading comment: The S&P 500 rallied to within 5 points of its overhead 50-day average this morning.  The Russell 2000 small cap is sitting right on its 50-day.  So we will need to watch if the indexes can regain their 50-days and put the bulls back in charge, or if more consolidation is in the cards.

When Will The Bombs Fall?

Markets are up again in early trading.  Of course, the Dow was up nearly 100 points yesterday morning but at one point gave back all of those gains before finishing fractionally higher.  Early strength and late day weakness is not bullish for the markets, so let's see if we can hold onto these early gains today.

The US Senate Foreign Relations Committee has approved military action in Syria, as long as the operation does not last longer than 90 days and does not require ground combat.  The market doesn't seem too fazed with this, although it has gotten oversold and thus due for a bounce.

The July trade deficit widened to $39.1 billion.  This should caused downward revisions in Q3 GDP estimates.

Asian markets were mostly lower, especially emerging markets.  Australia's GDP rose 2.6%.  China's HSBC Services PMI rose to 52.8 from 51.3.  China's President commented on local debt levels saying that current levels are controllable but the country may need to sacrifice economic growth to improve long-term economic development.

Europe's markets are mostly lower also.  Eurozone GDP held steady at 0.3%.  Eurozone services PMI slipped to 50.7 from 41.0.  Germany and Great Britain services PMI rose, as did Spain above the 50 level to 50.4. 

The dollar is lower today, but so are most commodities.  Oil prices are weaker near $107.50.  Gold prices are back below the $1400 level to $1391.  Silver and copper prices are lower also.

The 10-year yield is up slightly to 2.86% after hitting 2.90% briefly yesterday.  And the volatility index again touched the 17 level this morning but has since fallen -4.6% lower below the 16 level.

Trading comment: Yesterday's early strength could not be maintained, and it made sense not to chase the early strength. It remains to be seen if sellers will surface again today.  But big picture the S&P 500 remains below its 50-day average and as such caution is still warranted.  Our sense is that the market likely has some more work to do in this current consolidation, but we are getting closer to starting to put small amounts of cash back to work on market weakness.

US Stocks Play Catch Up

Global markets rallied strongly yesterday while the US enjoyed a holiday.  Positive economic data abroad and also a sigh of relief that no strike against Syria was imminent helped foreign markets post strong gains Monday.

Today our markets are playing catch up and rallying.  The August ISM Index rose to 55.7 from 55.4.

Asian markets rose overnight, led by a 3.0% surge in Japan.  Japan's gains were aided by yen weakness and also reports that indicate that the Bank of Japan will consider upgrading its economic assessment at this week's policy meeting.  China's HSBC manuf. PMI held steady at 50.1.  Hong Kong's retail sales rose 9.5% yr/yr.  And the Bank of Australia held its key interest rate unchanged at 2.50%.

In Europe, markets are flat today after gains yesterday.  Eurozone manuf. PMI ticked up to 51.4 from 51.3.  Great Britain's PMI spiked to 57.2 from 54.8.  And Italy and Spain even showed improvement.  Overall, it looks like Europe is beginning to show renewed growth and that should help it get out of its current debt crisis mode.

The dollar is higher today but so are most commodities. Oil prices are flat near $107.80, but gold prices are higher right at the $1400 level.  Silver and copper are also nicely higher.

The 10-year yield is bouncing strongly in reflection of the positive growth data.  The 10-year is 16 basis points higher currently to 2.90%.  It's August high was 2.92%.

The volatility index close at the 17 level Friday but is down 3% today to 16.55.  Given the sigh of relief on military action against Syria and the fact that a vote in Congress isn't likely until Sept. 9th at the earliest I would have expected the VIX to be down more.  But we will see how the day goes.

Trading comment: The markets are breathing a sigh of relief, but given that the S&P 500, S&P 400 and Dow are all still below their respective 50-day moving averages we feel that caution is still the operative word.  This could turn out to be the start of a new uptrend, but we don't need to guess about that on the first day.  Better to wait for the indexes to convert that overhead 50-day resistance into support and show a couple of closes above their key moving averages.  In the meantime the markets could be due for more consolidation as the uncertainty over Syria lingers.