Market Commentary

Stocks came under pressure as revenues at JP Morgan
January 19, 2010

Stocks came under pressure as revenues at JP Morgan narrowly missed expectations and renewed concerns over Greek’s budget deficit.  I would like to add another reason.  The two previous MLK holidays the global markets experienced great issues.  Markets are like elephants…they do not forget.

This week the market is faced with a torrent of profit reports.  As noted earlier equities have been on a major six week tear on anticipation results will increase at a pace greater than the expected 62% rate hence raising the specter any disappointment will be met with a sharp selloff.

As penned several times, I think it is essential for all to follow the happenings in Washington.  In my view the outcome of policy deliberations could have the greatest impact upon socioeconomic/marcoeconomic environment in over 25 years.  The President promised change however his vision of change was not clearly outlined during the campaign.

All know the budget deficit is exploding.  How will we—the collective society—pay for this progressive agenda.  Will it be higher taxes? What will be the economic impact of higher taxes especially given that as per the IRS 78% of the taxes are paid by 10% of the population.

As per the National Bureau of Economic Research a tax increase of 1% of GDP lowers real GDP by roughly 2% to 3%.  In other words higher taxes lower GDP, an environment that could perhaps be magnified under the Administration plans given the source of the vast majority of federal income. 

Unless one has been living in a cave, the Administration’s poll numbers are crumbling for a myriad of reasons including its tax and spending plans.  I think if the President moderates his views and alters his agenda, his poll numbers could rise.  Many view today’s special election in Massachusetts as pivotal regarding the potential outcome in Washington.

As mentioned above the markets will be faced with three major headwinds this week…the Massachusetts special election, a torrent of earnings and a moderate economic calendar.  The National Association of Home Builders (NAHB) is released today as is ABC Consumer Confidence.  Tomorrow the PPI, housing starts and building permits and Thursday the Philadelphia Fed and the Index of Leading Economic Indicators.

Markets are fascinating as they reflect all variables of life, variables that change daily in their degree of significance.

Last night the foreign markets were down. London was down 0.77%, Paris down 0.89% and Frankfurt down 0.85%.  Japan was down 0.83% and Hang Sang up 1.02%.

The Dow should open nominally lower on economic and profit concerns.  The 10-year is unchanged at 3.68%.