Market Comment - June 4

(Marco Bonelli) The most disturbing development following Friday's BLS report also gives answers to where the market goes!

How surprising was employment report? While the low number of payrolls in April and May was really surprising, the (re-)ignited assessment of the macro-economic situation should not have lead to a lot of surprises since economic data around the world already point to a broad global slowdown for more than two months.


The "surprise" factor after Friday's labor report is the most disturbing development and observation. It feels like the majority of market participants just STARTED realizing that stock prices disconnected from fundamental reality until beginning of May and that the anticipated acceleration of the economic recovery in the second half probably need to be pushed out to sometime in 2013. Just recently, economists started reducing their estimates for Q3 GDP growth on slowing export growth...; media outlets picked up the trend and report the breaking news: "...investors brace for slowdown..."; "...increasing alarm..." and the calls for more monetary and fiscal (yes, fiscal...) stimulus increase by the minute.

The fact that the recognition of fundamental reality appears to be in an early stage also answers the question whether the stock market correction will soon be over or not - it probably still takes a while until we reach that point!

Short-term players may try to push the major indexes back above their 200day MA (all averages but the NDX broke below these lines on Friday in addition to breaking through the previous lows in this correction from May18) but the question comes up, where to go next. The magnitude of Friday's damage most likely also contributed to the new perception of the economic outlook (and with that the outlook for the stock market): Financials, industrials and technology were the worst performing sectors; mid-and small-caps under-performed considerably; the stock market recorded the worst day of the year while market breadth (adv./decl.) was the worst since beginning of December and down-volume on NYSE and Nasdaq was the highest since middle of November last year and last but not least, the Dow Jones year-to-date performance is now negative, a development the rest of the major indexes may face, too.

Not surprisingly, calls for "Sugar-Daddy" (aka the Fed) to open his wallet again become increasingly loud. Unfortunately the next FOMC meeting takes place in two weeks with a decision out on June 20. Until then, countless opinions from Fed officials will leave investors more confused than assured. In addition, comments about "rescue programs", "deficit cutting targets" and "master plans" as well as statements from politicians like "...the crisis can be solved..." or "...EMU issues will be resolved soon..." really make investors feel better and sadly show that policy makers and other officials in Europe haven't learned anything from last year's situation (if only the Germans gave up their opposition to Euro Bonds...).

With not too many US economic numbers to be released this week, market players might look for the technical picture to gain some sense of what the market. Let's pick the 200day MA in the SPX at 1285 as the mark to watch, for whatever it's worth!

Trade well.


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