While the intermediate term action looks more promising technically after the "gap and go" late last week, it's still quite a volatile market. The entire holiday week's rally just disappeared in this opening 15 minutes of trading this morning and we're back to the mid level seen on the huge gap up Friday. That said, if we are in the throes of a sustainable move, action like today will help work off that major overbought condition I've been speaking of the past 2 sessions. Individual stocks continue to act 'better' so that is heartening from the bulls aspect.
If we take a step back and ask "why" stocks are acting better it is a bit bemusing – there is literally nothing positive in the global economic macro picture – everything is based on the belief that central banking easing can change things, including asset prices. But until that belief changes, you have to respect the herd.
I'd also point out a few more high profile warnings last night from the tech sector, Seagate (STX) among them. The hope for the bulls here is expectations for the quarter have been ratcheted down enough so we get the "beat lowered expectations" game, but with the global slowdown spreading there is a lot of risk to guidance in Q3 and Q4 as well. And lowered expectations mean lower profits – recall last quarter the only growth in the S&P 500 earnings came essentially from Apple and AIG. So if growth flatlines, or recedes you have to count on multiple expansion. We've seen a lot of earnings warnings the past 3-4 weeks, so I continue to believe this is going to be the most messy quarter since the earnings rebound began in latter 2009.
Not much of a "miss" here at 80K – it continues to point to the "meh" American economy we've been struggling with for years. Nothing horrid, nothing good. Private sector +84K, government down 4K. Not enough to keep up with the population growth but with so many Americans dropping out of the economy it keeps the unemployment rate way below what it would normally be.
April was revised down 9K, May revised up 8K.
Hours worked went up 0.1, and average hourly earnings up 0.3%.
U-6 is 14.9%.
Labor force participation rate flat at 63.8%.
QE(n) continues to be our path, just a matter of when.
As for markets, we needed an excuse to pullback – this will do just as good as any.
We've mentioned the past few years how one 'high growth' area in the economy is the renters market. [May 24, 2011: Troubled Home Market Creates Generation of Renters] [Apr 8, 2011: Apartment Vacancies Drop to 3 Year Low, as Rents Rise] With many former home "owners" (I use the term sparingly since many of the 2004-2007 ilk had 100-120%+ type loan to value!) locked out of the market, and many young people with not enough money in their pocket to create a down payment, renting has come back with much vigor. Also keep in mind this recession caused a massive drag to household formation. [Apr 8, 2008: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces] [Apr 9, 2010: 1.2 Million Households Lost in Great Recession - Through 2008] One net positive in the next 4-8 quarters should be a "building boom" of sorts in apartments ….
Very similar action to January 2012 here as that dip was bought aggressively. If corrections of overbought conditions are going to be 60-90 minutes long we definitely have a change of condition. Apple (AAPL) is back to its old ways after a few month break – leading the charge.
The ISM Non Manufacturing missed expectations at 52.1 but still remains over 50. If your thesis is the U.S. can decouple from Europe (and the rest of the globe) you'd expect the non manufacturing number and the services number to somewhat diverge. That said, while still expansionary this is the worst number in well over 2 years. New orders fell, as did prices – but employment held in.
As for the market, I don't think what the numbers matter much today as we're massively overbought in the short term. The only wildcard today you had to be careful of was if the ECB would do more than a 25 basis point cut which they did not. Also want to highlight the ADP number came in well this morning (>170K) but certainly does not 'fit' with the weekly job claims figure which points to a number closer to 80-110K job growth. It might ratchet expectations up for tomorrow's figure. …