Friday, February 07, 2014

Is Bad News Good News Again?

Stocks are higher this morning despite a weaker than expected jobs report.  January nonfarm payrolls increased by only 113,000 vs. consensus expectations for 189,000 jobs.  That's a pretty big miss.  Folks must be looking past this report due to the severe weather in many parts of the country and drought in California.  But even the President's Chief Econ Advisor said weather didn't play that big of a roll in the numbers.

Maybe investors are hoping that weak economic numbers might mean a delay in the Fed's tapering efforts, but I think the Fed has pretty much locked in their course to end QE by year's end, unless we really see economic growth drop off significantly.

In corporate news, LinkedIn (LNKD) reported earnings last night but the results disappointed investors and the stock is lower today, but not as bad as TWTR yesterday.  On the upside, AAPL reported that it has bought back $14 billion in stock just in the last few days following the negative reaction to its earnings report.  Nice to see mgmt. stepping up to use some of that cash hoard.

China reopened last night after a week long Lunar New Year holiday.  The Shanghai Comp was up only 0.6%, but that wasn't bad given the weak economic news lately coming out of China.  Last night HSBC said China's services PMI slowed further to 50.7 from 50.9.

Europe's markets are up slightly today.  Germany's industrial production fell 0.6%.  Swiss retail sales rose 2.3%.

The 10-year yield is lower by 3 bps to 2.67%.  So at least the bond market seems to be interpreting the soft jobs report as one would expect.

The volatility index has come way down from 21 level it topped on Monday.  Today it is -10% lower all they way back to 15.40. 

Trading comment: The S&P 500 has bounced back to around the 1785 level.  But we stated that this would not surprise us, and that often markets bounce back after sharp selloffs and oversold conditions.  So we can't yet call this correction over just because we've seen a bounceback.  We still need to see if there is going to be any retest of the recent lows, or if the markets are going to build more of a base from which to move higher.  The 50-day average for the SPX is now rolling over and taking on a negative slope, something we haven't really seen in about a year.  So that downsloping 50-day could act as stiffer resistance now, and we likely wouldn't get too bullish until the SPX is back above its 50-day and using it as support rather than resistance.

KAM Advisors has long positions in AAPL

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