In the Thick of a Headline-Driven Market

by Bryan Perry | June 30, 2012 8:00 am

In the Thick of a Headline-Driven Market

The newswires are chock-full of market-moving headlines this week. We’ve got the Supreme Court’s ruling to uphold the health care mandate, JPMorgan’s (NYSE:JPM[1]) potential $9+ billion loss from their London trading desk, Spanish 10-year bond yields rising back above 7%, the European Union summit in Brussels, German PM Angela Merkel stating there would be no debt-sharing over her dead body, new home sales posting their best increase in five years, and the Chinese finance minister reporting that his country will achieve 7.5% GDP growth for 2012. It’s about as much of a headline market as I can remember.

While there seems to be more negative than positive news hitting the tape, the major averages have held their ground, preferring to focus on the rally in natural gas, grains, upbeat housing data and the perception that some kind of progress would be made at the EU summit that begins today.

Thursday’s negative reaction to the Supreme Court ruling is being construed as assuming that higher taxes are coming on business balance sheets in the next year and beyond, which would add stress to profit margins. It might be just a knee-jerk reaction, but it’s a negative one nonetheless.

With the S&P 500 back down to technical support at 1,300 to 1,320, investors have to pay more attention to what they own than they normally do. It’s mentally taxing to constantly validate every holding in one’s portfolio, but it’s necessary as the ground constantly shifts below us. I can’t speak for anyone else, but I know that at the end of some days, I’m reaching for the Bayer aspirin bottle. It becomes an exercise of psychology at times, and very few of us excel at that on a short-term basis.

In light of all the uncertainty, the yield on the 10-year Treasury Note had fallen to 1.57% midday, expressing just how content vast amounts of capital are to wait out the mind games — even if it means getting a real negative return on that money after taxes and inflation are factored in. In such an investment landscape, the best elixir for calming down the volatility is a steady stream of earnings that come in on target.

The market already has priced in a lot of expected bad news that has yet to be reported, and some validation of decent growth by the multi-nationals backing up the recent good news from the housing market will do much to provide support for equities at current levels. There’s nothing like reverting back to the numbers concerning corporate revenue and profit growth to redirect the market’s attention toward the business of business.

Endnotes:
  1. JPM: http://studio-5.financialcontent.com/investplace/quote?Symbol=JPM

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