Market Commentary

Markets traded to their lowest levels
January 29, 2010

Markets traded to their lowest levels since early November even as 80% of S & P 500 companies have exceeded profit expectations.  About a month ago I wrote, following strong earnings the averages could potentially decline about 5%-7% as a result of the uncertainty surrounding the inevitable change in monetary policy.  I got the uncertainty correct but the timing of and the catalyst for this uncertainty wrong.

As widely written the markets are concerned about the most progressive Central Government in over a generation attempting to lead via a populist agenda.  Incidentally and as noted numerous times populism has never succeeded in America because of our “can do” positive attitude.  In my view and as evidenced by the President’s poll numbers today society is overwhelmingly rejecting the creation of a European Socialist Democracy.

This is the third consecutive January the Dow has declined.  Fortunately I have not read the infamous phrase “As January goes so does the year.”  Personally I find statements of this type at best annoying and most often wrong.

Today fourth quarter GDP is released.  Consensus is expecting a 4.7% in output, the sharpest rise since the first quarter of 2006.  How will this data be interpreted?  Recent statistics have disappointed nominally however I must write for the first time since the recession/recovery began the Central Bank is talking in terms of a sustainable rebound.

What will occur today?  Bernanke’s reconfirmation was a non event, an issue settled yesterday before the market closed. Personally I thought the negative comments about his reconfirmation was nothing other than political posturing, a belief validated a 70-30 vote. 

Will sovereign debt issues again weigh on the markets today?  Yesterday speculation mounted that Greece would not be able to refinance its debt.  As one media pundit stated we now have PIGS…Portugal, Italy, Greece and Spain.  Considerable attention is now focused upon these four deficit laden, high tax European Socialist Democracies.  Is this attention warranted or are all hyper sensitive given the events of the last 3 years?

In this vain, I ask what are the odds the BRIC nations (Brazil, India, China and India) become synonymous to a brick thrown into a pool because of excessive and speculative bank lending?

Last night the foreign markets were mixed. London was up 0.65%, Paris up 0.85% and Frankfurt up 0.89%.  Japan was down 2.08% and Hang Sang down 1.15%.

The Dow should open moderately higher as earnings are consistently beating analyst expectations by a margin of 8:1.  Obviously trading today will be influenced by 4Q GDP.  How much of the increase in growth is the result of inventory restocking?  The 10-year is off 5/32 to yield 3.66%