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

lunedì 7 maggio 2012

Market Comment - May 7

(Marco Bonelli) You can't escape deteriorating fundamentals!

Although the (sort of) anticipated and the (sort of) discounted political uncertainty in Europe garner all the headlines this morning, it's the fundamentals that drive the latest move in the market and that a lot of investors are (sort of) worried about.

Even beginning of last week, almost every piece of news seemed to be good news, positive data from the consumer and housing sector helped fuel recovery hopes and short-covering along with asset allocation shifts out of bonds supported a short-lived rally within the consolidation. However following disappointing retail same-store sales and a disappointing ISM Non-Manufacturing Index for April but latest after a second consecutive bad labor report (quite perplexing, that 812k full-time jobs were eliminated, 506k part-time jobs were created and a mix of seasonal adjustments, birth/death adjustments and other adjustments made up for the difference to come up to 115k new payrolls), this rebound appears to be over and investors have to figure out once again if the market continues to face a sideway consolidation or if chart pictures darkens to a degree that a correction might be unavoidable.

Since the majority of companies already reported their Q1 results (so far 7.54% annual growth), the focus will be back to macro-economic data but also the Q2 earnings outlook as uncertainty remains whether a slow-growth economic environment can continue producing decent earnings growth, which would be good. At the same time double-digit earnings growth in the past three years could be defined as an unsustainable special situation and while earnings in Q4 and Q1 still benefited from some temporary sign of economic strength, which started partly evaporating at the end of Q1, so Q2 could turn out to be difficult. Consensus estimates for Q2 earnings have been reduced since beginning of April (particularly in sectors like energy, technology, industrials and utilities) along with a wave of profit warnings and growth is expected to be a mere 0.9% (-0.7% ex financials).

Amid this development in recent days, a lot of 50day MAs have been broken to the downside again, the Russell 2000 and Value Line Index even closed below their 100day MA, commodities (CRB Index) fell below 300 and trade close to their October and December lows (particularly energy that reflects weaker demand outlook, although it was also helped by talks about higher CME margin requirements) and it's hard to keep up counting all "sell-in-May" articles. This certainly stirs up more negative sentiment and if it was only a call on the unfavorable seasonal pattern of the market, it might even be a contrarian recommendation to buy. However, unfortunately deteriorating fundamentals represent a dominant force and coincidentally the calendar shows May. Still due to the large number of negative comments around the seasonal trade, a few bullish recommendations vehemently reject the "sell-in-May"-call, particularly from strategists that keep on sticking to their 1450-1500 SPX year-end targets.

The question that comes up is: Why shouldn't investors sell in May?

By the way, all those who hope for a QE3 miracle from the Fed might have to wait a bit longer as economic data is not bad enough to justify an immediate push of accommodation, especially when you consider a continuously contracting monetary base since end of February.

It will be an interesting week with little economic data, a few left-over earnings reports and the question how all global issues further develop.

Trade well.

(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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