Editor’s Note: While Sam Collins is on vacation, we’ve asked Nick Atkeson and Andrew Houghton, editors of Big Money Options, to provide you with a comprehensive market outlook and a trade of interest until Sam returns June 1.
Broader market bullish enthusiasm was restrained Wednesday by a slew of lingering concerns.
Investors continued to worry about the financial health of many of the smaller banks. TARP funds have been drawn down to $123.7 billion and the Federal Open Market Committee (FOMC) meeting notes released today indicate the recovery may be slower than expected and the government may have to make for further asset purchases to keep the economy on track. Oil keeps rising and touched a six-month high at more than $62 per barrel.
In his report to the Senate Banking Committee, Treasury Secretary Timothy Geithner announced the Treasury is giving small banks six months to convert into bank holding companies that would qualify them for aid. He also said the plan will have public/private money be jointly invested is about six weeks away from implementation.
The S&P 500 (SPX), after being in positive territory until the last hour of the trading session, closed down 0.67%. The Dow (DJI) was down 52.81 point or 0.62%. The Nasdaq (NASD) did slightly better and closed down 0.39%.
The CBOE Volatility Index (VIX) continued its multi-month decent and closed at 29.03 after reaching an intra-day low of 26.57.
Credit markets saw even more intense buying of credit today than it did Tuesday. Much like the equity market, the most depressed issues are becoming the biggest winners. The early indication is the crisis in the credit markets is steadily on the mend.
The Baltic Dry Index hit new highs again yesterday. Many investors use this index as a leading index for both commodity prices and the overall economy. Is it possible that China’s demand for commodities is moving back to pre-Olympic levels.
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What the Markets Are Saying
There is an active debate among equity investors between the bear-market-bounce and the cyclical-bull-market-beginning camps. The debate is far from finished. After 30% appreciation from the March 9 lows, the S&P 500 (SPX) has proven to be resilient in the face of tremendous new equity issuance and mixed news flow.
The credit market proved to be a leading indicator on the way down and we suspect it will be a leading indicator on the way up. The credit markets are clearly improving and signaling higher equity prices over time.
Summer is always a choppy time for the stock market. Many institutional investors go on vacation and the supply/demand equation can get out of balance for short periods of time. With the battle between the bears and bulls raging, we expect lots of ups and downs during the summer months.
Today’s Trading Landscape
Before market open, we will see reports from The Buckle, Barnes & Noble, Bon-Ton Stores, Bristow Group, Casual Male, Gamestop, Global Sources, Hormel Foods, Kirklands, MF Global, Navios Maritime Holdings, New York & Company, Patterson Companies, Children’s Place, Partner Communications, Rosetta Genomics, Ross Stores, Stein Mart, ReneSola Ltd, Stage Stores, Suntech Power, Tech Data, Telvent, Toro Company and Trans World Entertainment.
After the close, we will see reports from ARCA Biopharma, Accelrys, Autodesk, Alkermes, Aeropostale, Aruba Networks, Books-A-Million, Black Box, Brocade, Cost Plus, Salesforce.com, Dress Barn, Ditech, 8×8, Inc, Euroseas Ltd, Excel Maritime Carriers, Foot Locker, Gap, Hibbett Sports Inc., Hurray! Holding, LDK Solar, Nordson, Parlux Fragrances, Pacific Sunwear, Red Robin Gourmet Burgers, Safe Bulkers, SkillSoft, Universal Corp, Verigy and Zumiez.
On the economic front, U.S initial jobless claims (from the week ending May 16) and U.S. continuing claims (from the week ending May 9) will be released. Consensus estimates are 625,000 and 6.6 million respectively. The U.S. leading indicators will be reported for April and are expected to be up about 0.7%.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
