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

martedì 14 agosto 2012

Market Comment - August 14

(Marco Bonelli) Looking at the details, is the rally telling the right story?

After a remarkable performance in June, July and so far August and trading in a rising trend channel, the major averages find themselves back close to the highs from March and April, which means close to 4-year highs in the Dow Jones (up 7.8% ytd) and SPX (up 11.6% ytd) and close to 12-year highs in the Nasdaq (up 16% ytd).

Taking a look at the composition of the recent rally, investors find quite a diverse picture. It is already well discussed that the rally lacked clear leadership, that it was mainly and surprisingly driven by defensive sectors and that trading volume and market breadth was anything but convincing - overall a description that confirms a rather cautious stance.

§  At least the technology sector managed to show up among the leading sectors more often, which reflects the fact that the sector almost caught up all losses from May and about two third of the decline from the March/April highs. In addition a few sub-sectors trade close to their highs from 2011 and also 2007 - while catching up with the highs of the year could be a formality, breaking out to new highs may be a different story with a big question mark behind.

§  Financials still remain in the wide range that started in 2009 with insurance trading at the upper end, banks in the middle and brokers and diversified financials more at the lower end of the range - no clear message possible where the next move might take it.

§  Consumer stocks have been one of the strongest performers so far this year. Consumer staples even trade close to multi-year highs, although beverages for instance, along with retailers and specialty retailers hit the uptrend from 2009, which could prove to be difficult.

§  Similar to consumer staples, the healthcare sector also trades near multi-year and even all-time highs - the big question here is, if defensive stocks remain among the front-runners or if these sectors will see outflows in favor or more cyclical sectors, in case the rally decides to move on.

§  So far, industrial and cyclical sectors turn out to be the weakest link that on average just caught up less than half of the losses from May. Some beaten down sectors like metals stage a rebound attempt and homebuilders, building materials and also industrial conglomerates already broke or are about to break out of a multi-year consolidation while the transportation sector underperformed recently (once again) - overall are very diverse and even contradicting picture with signs of a broader improvement.

§  Finally the energy sector shows signs of life after a multi-year consolidation with refiners as the first to break out of that range.

So in summary you have financials stuck in a range with lots of questions regarding their fundamentals, you have many technology sub-sectors that trade close to multi-year highs while the sector overall saw 6-7% earnings revisions to the downside for Q3 in recent weeks, you have strong performance in the consumer sectors although spending patterns and operational results were rather weak between March and June (and only saw some improvement in July same-store sales and advance retail sales), you have a mixed picture in industrials with sub-sectors related to the housing recovery showing the best performance (and probably discounting a lot more than the rather muted recovery on home sales and housing starts from very depressed levels shows) and finally you have an improving picture in the energy sector based on some recovery in the underlying commodity prices, despite little weakness in the Dollar.

Overall, with each day of the market creeping higher, the impression grows that a lot of good news already gets discounted, ranging from an overall economic recovery, an acceleration of the housing recovery, a sharp improvement in global demand and a strong rebound in earnings growth. It's rather unlikely that reality will be able to catch up with these ambitious expectations and hopes, let alone the question if economic activity and earnings will see any improvements within the next few months at all. Not surprisingly, sentiment remains mixed and appears to be stuck between the stage of trying to explain the rally but remaining skeptical and the stage of cautiously jumping into the game and slowly embracing it, although an underlying optimism only needs a few positive data and headlines to break out.

With that, the SPX is able to defend levels above 1400 and the Nasdaq Composite above 3000, waiting for upcoming events like the Empire Manufacturing and Philadelphia Fed Index and housing starts along with CSCO earnings tomorrow to keep high-flying hopes and the rally alive.

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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