Il Primo Ministro greco Lucas Papademos riceve l'approvazione del governo su tagli al bilancio che corrispondono al 7% del Pil nei prossimi tre anni e su una ristrutturazione finalizzata a ridurre di €100 mld gli oltre €200 mld di debito detenuto dai creditori privati, atteso il voto del parlamento • Standard & Poor's declassa il merito creditizio di 34 banche italiane tra cui UniCredit a BBB+ da A, Intesa Sanpaolo a BBB+ da A e Banca Monte dei Paschi di Siena a BBB da BBB+, S&P anticipa "una redditività decisamente debole per le banche italiane nei prossimi anni" • La produzione industriale italiana aumenta a dicembre +1,4% da novembre +0,3%, oltre le stime degli economisti +0,5%, anche se i dati del quarto trimestre -2,1% suggeriscono che la terza economia della zona euro è entrata nella seconda recessione dal 2009 • I Btp decennali salgono per la quinta settimana consecutiva, il periodo di recupero più lungo in oltre cinque anni, la prossima settimana il Tesoro vende €4 mld di buoni al 6% con scadenza 2014 • L'euro cala dal massimo di due mesi contro il dollaro, il mercato azionario europeo cala dal massimo di sei settimane e l'azionario Usa registra la prima settimana di perdite del 2012 dopo che i ministri delle finanze europee non hanno concesso il pacchetto di aiuto necessario a prevenire il collasso economico della Grecia

venerdì 28 ottobre 2011

Market Comment - October 28

(Marco Bonelli) After the 3.4% SPX rally that saw financials advance 6%, basic materials 5.8%, industrials 4.5% and energy 3.8% and many single stocks more than 10% just in one day and that lifted the average up 19.5% since the lows three weeks ago, will we go back to the regular routine and pretend nothing had happened?

A move like yesterday certainly needs to get absorbed especially as investors still have their head in this murky headline cloud from Europe and try to figure out if there is any positive or mostly negative between the lines. From an analytical point of view, most comments settle on the message that the "deal" just buys some time as a lot of questions got unanswered and the proposed measures basically don't change anything, but we all know that analytics is only a small part of market action.

So some profit-taking is likely, some more short-covering at slightly lower prices is likely, some more October window dressing is also likely and the remaining crowd might just wait and see because what should you do if you were not involved and suddenly a lot of your "focus-list" stocks are up 20, 30% or more over the last three weeks?

The technology and consumer sector were underperforming yesterday, the latter actually underperformed the last three days. Both sectors are among the best performing sectors and many stocks in both sectors trade at new all-time-highs or at least 52-week highs, so some asset allocation shift out of these best performing sectors into lagging sector or stocks makes sense. Having said that, there is a disconnect between the surprisingly strong outperformance of the consumer sector versus the SPX since beginning of August and a look at the fundamentals that reveals interesting and slightly disturbing details:

Q3 GDP Personal Consumption up 2.4% and Personal Spending in September up 0.6%, both better than expected and shows that the consumer is more or less well and alive, or not?

Q3 Consumption was mostly driven by a 4.1% gain in durable goods (mostly cars) while non-durable good were up 0.2% and services was up 3.0%. During that time the personal savings rate dropped from 5.3% in June to 3.6% in September. So consumers saved a lot less and probably even drew on their savings in order to buy cars. The assumption that they cut into their savings is also supported by the monthly personal spending numbers.
In July, August and September, spending grew 0.9%, 0.2% and 0.6%, respectively while personal income stayed basically flat (+0.1%, -0.1%, +0.1%, respectively), in other words, during the last quarter, consumers spend more than they have - not a sustainable and healthy trend in the current economic environment (where consumer confidence dropped to levels close to the 2008 lows, citing unemployment, lack of job availability, declining real estate values and declining real wages - all during a long-term deleveraging process). In addition to that, recent reports from AMZN, BBY, ODP (among others) pointed to cautious and muted retail behavior, so maybe there is more behind the relative underperformance of the sector.

In the mean-time, positive sentiment continues to rise and strategists and market commentators stand in line to express their bullish view for a year-end rally (does that mean that the last 20% could be called fall-rally, which will be followed by a 10% to 15% year-end rally to reach the 1400/1450 year-end goal for the SPX?), especially if they were pounding the table since August and can finally claim victory!

It remains to be seen if declining fundamental trends (continued slow economic growth in the US, declining global economic growth with an almost likely recession in Europe coupled with declining earnings growth), a soon to re-emerge European crisis and plenty of unresolved issues will get ignored for longer going forward. Therefore it shouldn't be a surprise, if we see a significant correction in stock prices within the next few weeks (or days?). But so far the dust hasn't settled and the risk to miss further upside appears to be greater than the risk of any pull-back.

Trade well and have a great weekend!

(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own)

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