“Hike, Hike?” For investors’, ‘just right’ Goldilocks economic conditions made for some offensive and a January barometer cheering ‘Da Bulls as 2007’s stateside champs. For the five-day period, the NASDAQ Composite ($
COMPQ) and S&P500 ($
SPX) are higher by 1.66% to 1.83%.“Hike, Hike!” Investors possibly heard those words over the weekend, but apparently not from the guy in charge of driving the markets forward. Early action in the first-half of trade was generally conducive to the bulls taking control of the offense. A flurry of Merger Monday activity (
BMY,
CFC,
MER,
SYMC,
C and
LAUR) and profit-taking in oil that day saw some players come in off the sidelines. In general though, the first-half was a sleeper of second string shuffling with little in the way of decisive movement. In fact, with Tuesday ushering in leadership from the energy complex (
XLE,
OIH), one might say The Curly Shuffle was seen as growing popular with investors. Black Gold reversed back through $55 to close up by nearly three points at $56.97, but due to the influential weighting of energy stocks, a positive catalyst for the broader indices was offered. With disappointing earnings from the Three Stooges a.k.a. Pharma giant Merck (
MRK), 3M (
MMM) and United Parcel (
UPS) that day, the market certainly has a good sense of humor.Wednesday’s kick-off brought out the first team and a more serious game face to boot. The Q4 Advance GDP rose a stronger-than-anticipated 3.5% versus analysts’ estimates of 3.0%. While investor cheer could be heard on that front, an in-line 1.5% chain deflator, a slightly better-than-expected employment cost index (.8% vs 1.0%) and a drop of -.8% in the PCE price index were mixed enough in their overall readings as to hint that the Fed would maintain a hawkish lean. That being said, the bulls called an intraday timeout as they waited on play confirmation from the market’s quarterback.A quarterback sneak by Bernanke with a call of ‘5.25% and further rate hikes may yet be necessary’ was apparently understood by the offense to signal the charge forward. Despite having already offered out the same play and one that still implies that any change in policy will likely be towards tightening, the market rallied around the statement. Further recognition by the Fed that the economy has turned up, housing stabilized and price pressures still only affording bluffing tactics might be seen as reasons behind the Hail Mary by investors. Thursday did offer bulls’ leaning on policy verbiage of ‘improved and should moderate further’, confirmation of easing price pressures. The Fed’s favored price gauge, the core PCE deflator, rose just .1% in December. The benign reading comes on the heels of a flat result in November and can be seen as a positive trend towards lower inflation. On the other hand, an unexpected slip to contraction levels of 47.5% versus estimates of 51.5% for the ISM Index and a bump of 5.5% to 53% for the prices paid component should serve as reminders that ‘Da Bears could still find their game, despite being underdogs on Wall Street and other playing fields. A ‘just right’ jobs report delivered on Friday didn’t have the bears hearing “Hike, Hike” to begin their own offensive assault. Nonfarm payrolls that were adjusted for ‘now complete’ tax data turned a “miss” of 39,000 into a figure that was perfectly in-line with expectations. Further, a drop of .1% in December hourly earnings and a current .2% reading that was below estimates of .3% helped the bulls with their case. In recent months with wage-based pressures weighing heavily on the Fed, the combined data goes a long way towards easing those concerns.
ON TAP THIS WEEK
Economic watchdogs will be finding a reprieve this week. A much lighter and less significant calendar of catalysts are on tap. Further expectations for “just right” economic conditions will need to find additional momentum from investors without much actual evidence. One report that investors could key off of will be Monday’s ISM Services figure. After a disappointing ISM manufacturing figure, a stronger result might result in a sigh of relief and a rallying point. A worse-then-expected result, using that logic, would likely find investors focused on profit-taking.An additional factor jockeying for investors’ attention will be the price of oil. Since contract lows were set nearly three weeks ago, higher prices in Black Gold have yet to impact the market in a negative capacity, despite price gains of nearly 8 points or 15% to $59-a-barrel. Of course much of the broader market’s resilience is due to the energy complex (
XLE,
OIH) having enjoyed a tremendous rally simultaneously. As one of the market’s most heavily-weighted sectors, the potential negative impact of higher prices has thus been negligible. That being said, it will be interesting to see if the spin machine focusing on consumer spending and corporate profits goes back to work this week. It will be another week of heavy corporate reporting for earnings hounds. With close to two-thirds of S&P500 companies having delivered their Q4 results, aggregate earnings are shaping up slightly stronger at roughly 11%. However, while some relief might be felt over the possibility for a fourteenth quarter of double digit growth, all other benchmarks are off fairly hard and do point at much slower profit growth heading into the first-quarter. Eyeballing guidance figures and its readily apparent that revisions lower, rather than stronger outlooks are more the standard operating procedure and reaffirmations the most popular avenue taken. In spite of the current BTE parade, maybe that’s one reason that forecasts for Q1 have been lowered to 5% during the same period.
Monday
Economic: ISM Services (57)
Earnings: BE Aero (
BEAV), Potlatch (
PCH), Royal Carib (
RCL), Anadarko (
APC), Las Vegas Sands (
LVS), Edwards LS (
EW), Sohu (
SOHU), Pitney (
PBI), Thomas & Betts (
TNB), WMS (
WMS)
Tuesday
Economic: N/A
Earnings: Auto Data (
ADP), Celanese (
CE), Duke (
DUK), InterActive (
IACI), Intl SE (
ISE), Littlefuse (
LFUS), Louisiana Pac (
LPX), Natl Oilwell (
NOV), Tyco (
TYC), Cisco (
CSCO), Dentsply (
XRAY), Diodes (
DIOD), FEI Co (
FEIC), ResMed (
RMD), Travelzoo (
TZOO), USANA (
USNA)
Wednesday
Economic: Productivity (1.7%), Weekly Crude
Earnings: Cigna (
CI), Devon (
DVN), Intcnl Exchange (
ICE), Lazard (
LAZ), MedImmune (
MEDI),Tim Hortons (
THI), Whirlpool (
WHR), Affymetrix (
AFFX), Akamai (
AKAM), Alcon (
AL), Maxim (
MXIM), UEPS Tech (
UEPS), Riverbed (
RVBD), Sina (
SINA), Disney (
DIS)Thursday
Economic: Weekly Claims (310K), Wholesale Inv (.6%)
Earnings: Aetna (
AET), Bunge (
BG), Carlisle (
CSL), Corrections Co. (
CXW), Diamond Offshore (
DO). Express Scripts (
ESRX), FLIR Systems (
FLIR), Level 3 (
LVLT), Marriott (
MAR), Walter Ind (
WLT), Qwest (
Q), Broadcom (
BRCM), Digital River (
DRIV), Comtech (
COGO), Panera (
PNRA), Energy Conversion (
ENER), Lifepoint (
LPNT), Opentext (
OTEX), W.G’Batch (
GB) Friday
Economic: NA
Earnings: Alcatel-Lucent (
ALU), Hasbro (
HAS), MasterCard (
MA), Weyerhauser (
WY), AGCO (
AG), American S & E (
ASEI), Coventry (
CVH)
By Chris Tyler, Optionetics.com
Labels: ADP, APC, BEAV, CE, CSCO, DUK, EW, IACI, ISE, LFUS, LPX, LVS, NOV, PBI, PCH, SOHU, TNB, TYC, TZOO, WMS
