Friday, July 06, 2012
Stock Market Commentary:

Stocks and a slew of other “risk-on” assets ended mostly lower on a shortened holiday week as investors digested a slew of economic data from across the globe. In the short-term, the current rally is under pressure for US equities which began on Friday, June 29, 2012 (in the wake of late June’s EU summit). At this point, the larger macro concerns (e.g. a slowing global economy, fiscal and monetary cliff in the US, et al) that have plagued our markets for the past few years are resurfacing and putting pressure on a slew of risk-on assets. The market is back in a confirmed rally now that the major averages are back above their respective 50 DMA lines.

Monday-Wednesday’s Action- Stocks Quiet Ahead of July 4th Holiday:

Stocks were quiet on Monday as investors digested the latest round of disappointing economic data. The latest PMI data from China and the US missed estimates which supports the thesis of a global economic slowdown. The Institute of Supply Management (ISM) said their purchasing manufacturing index slid to 49.7 which missed the Street’s estimate and fell below the boom/bust level of 50 which signals contraction. This was the first time since July 2009 that the reading fell below 50 and bodes poorly for the already fragile economic recovery and Q2 earnings season. In M&A news, Bristol-Myers Squibb (BMY) said it plans to acquire Amylin Pharmaceuticals (AMLN) for $31.00 per share in cash or $5.3 billion. The total value of the deal [including Amylin’s net debt and a contractual payment obligation to Eli Lilly (LLY)] totals $7 billion. Additionally, Brightpoint (CELL) said it will be acquired by Ingram Micro (IM) for $9.00 per share in cash, representing a 66% premium to the prior day’s close. Finally, Lincare (LNCR) said it will be taken over by The Linde Group for $41.50 per share in cash, representing a 22% premium to the prior day’s close. This transaction totaled $4.6 billion.
U.S. stocks closed early on Tuesday and were closed on Wednesday in observance of the July 4th holiday. The positive news was that factory orders rose three times what analysts expected which bodes well for the economy. The Commerce Department said factory orders rose +0.7% in May which topped the Street’s estimate for a gain of +0.2%. All U.S. markets were closed on Wednesday in observance of the July 4th holiday. Overseas, most markets fell as the latest “global slowdown” concerns resurfaced.

Thursday & Friday’s Action- EU Leaders Find “Another” Solution:

Investors digested a plethora of data on Thursday. China’s Central Bank unexpectedly cut rates for the second time in a month to help stimulate their slowing economy. The Bank of England (BOE) expanded its asset purchase program and the European Central Bank (ECB) cut rates by -0.25%. The BOE and ECB’s moves were expected but China’s surprise cut led many to question the health of their economy. In the U.S., the news was mixed. ADP, the country’s largest private payrolls company, said U.S. employers added 176K new jobs last month which topped the Street’s estimate for 105k and bodes well for Friday’s jobs report. The Labor Department said weekly initial jobless claims slid to 374K, which beat the Street’s estimate for 385K. Finally, the ISM services index fell to 52.1 which slid below the Street’s forecast for 53.0 but remained above the boom/bust level of 50. Before Friday’s open, the Labor Department said US employers added only 80k new jobs last month which missed the Street’s estimate for 100k. Meanwhile, the unemployment rate held steady at 8.2%.

Market Outlook- Rally Under Pressure

From our point of view, the current rally is under pressure after the dismal reaction to Friday’s payrolls report. It is somewhat encouraging to see all the major averages close above their respective 50 DMA lines. Technically, the 200 DMA line and June’s lows are the next level of support while April’s highs are the next level of resistance for the major averages.  As always, keep your losses small and never argue with the tape. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!