Thursday, December 05, 2013

Is The Economy That Strong?

Markets are lower again in early trading amid more fears that the Fed will begin to taper sooner due to stronger economic data coming in.

The ADP payrolls report was stronger than expected yesterday, and today the GDP report was revised higher than most people expected.

The second estimate of GDP for Q3 indicated the economy grew 3.6%, which is much higher than the initial estimate of 2.8% and up significantly from Q2's gain of 2.5%.  But there are comments that much of the gain came from a change in private inventories.  To wit, retail final sales, which excludes inventory adjustments, rose just 1.9%.  So is the economy really as strong as today's GDP report would indicate?

For now, investors are selling first and asking questions later.  This will make tomorrow's monthly jobs report all the more important.  If the jobs report is strong, taper fears will spike again and stocks will likely selloff.

In corporate news, AAPL stock is up on a down day after reports indicate the company is close to inking a deal with China Mobile to distribute iPhones over their network.  AAPL hit $575 in early trading.

Asian markets ended mostly lower.  S. Korea's GDP rose 3.3%. 

Europe's markets are mixed after both the Bank of England and ECB held rates steady.

Taper fears are also hurting precious metals, with gold prices falling down to $1219.

The 10-year yield is higher to 2.85%.  If you look at the chart of the 10-yr yield like it was a stock, you would be bullish and looking for higher prices (yields).

Trading comment: The stock market is down for a rare 5th consecutive day, although the declines have been very mild on a percentage basis.  Underinvested portfolio managers appear to still be in dip buying mode.  That could play out tomorrow as well.  We would not be surprised to see stocks open lower on a stronger than expected jobs report, but rebound by the end of the day as investors look to use the weakness to add equity exposure.  We are sticking with the names we mentioned recently that are nearing fresh breakouts, and also warming up to some of the energy plays that have been weak in recent weeks.


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