Daily Market Commentary

Global Central Banks Fail To Act

Long-Term Look At The US Stock Market

Friday, August 03, 2012
Stock Market Commentary:

On average, risk-on assets ended mixed to mostly lower last week after global central banks stuck their collective heads in the sand and did virtually nothing to support their strong rhetoric from late July. Earnings continue to be a virtual nonevent as most stocks fail to impress Wall Street. The vast majority of companies so far have beaten already lowered expectations but the “beat” was marginal at best. The number of strong blow-away numbers has been much lower than prior years in this recovery.

Monday-Wednesday’s Action: Stocks Quiet Ahead of Fed Meeting:

Stocks were quiet but ended lower on Monday as investors waited for a busy week of earnings and economic data to be released. US Treasury Secretary Timothy Geithner met with German Finance Minister Wolfgang Schaeuble to discuss the latest developments regarding the ongoing EU debt crisis. They agreed to cooperate in advancing policies that are designed to help stabilize the already fragile euro zone periphery nations. Stocks were quiet on Tuesday and remained in a relatively tight trading range as investors digested the latest round of earnings and economic data and waited for more direction from the Fed and the ECB before taking further action. Economic data was largely a nonevent. Personal spending was unchanged which barely missed the Street’s estimates for a nominal gain of +0.1%. Core personal consumption rose +0.2% which matched estimates. A separate report showed consumer confidence rose to 65.9 topping the Street’s estimate of 61.0. On average, earnings were mixed but did little to inspire confidence.
Stocks opened higher on Wednesday after ADP, the country’s largest private payrolls company, said US employers added 163k new jobs in July. The ADP report topped the Street’s estimate for a gain of 125k and bodes well for Friday’s official jobs report. It is important to note that the correlation between the ADP and the official jobs report is spotty as best. After the open, the ISM’s manufacturing index contracted in July, disappointing investors. The big news of the day came from the US Fed. As expected, the Fed largely reiterated their recent stance of a “wait-and-see” approach for further QE. 

Thursday & Friday’s Action: Global Central Banks; All Talk, No Action:

Stocks and a slew of other risk assets fell on Thursday after the European Central Bank (ECB) and Bank of England held rates steady and did nothing really “new” to appease investors already heightened expectations. ECB President, Mario Draghi, failed to follow through from his very popular quote from late July where he said he will “do whatever it takes” to save the Euro. The quote was taken out of context because the rest of the quote said, he will do whatever it takes within the ECB’s mandate to save the Euro (As if this wasn’t already common sense). This sparked a strong short-covering rally but the fact that he failed to step up to the plate on Thursday sent a slew of risk assets lower. Stocks opened higher on Friday after the Labor Department said US employers added 163,000 new jobs in July which topped the Street’s estimate for a gain of 100,000. The unemployment rate edged higher to +8.3%. The report showed that July’s average hourly earnings rose by 0.1% vs June’s increase of 0.3%.
Market Outlook- Confirmed Rally
From our point of view, the current market is in a confirmed rally which means the path of least resistance is higher. 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!

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