Market Commentary

A case can be made the panic in the financial markets
May 27, 2010

A case can be made the panic in the financial markets might have been reached on Tuesday.  In my view there have been several significant positive events during the last 48 hours that support a more optimistic outlook. 

For example, economic data including consumer confidence, durable goods and home sales offered needed evidence the economy is still improving.  Various global economic organizations have boosted 2010 and 2011 expected growth rates. Several headlines stories suggesting the PIIGS will not have a meaningful negative impact on growth.  More announced European austerity measures.  A financial reform bill not as restrictive as feared.

I will add a more elusive reason.  Stocks declined to a key technical level, held and then rebounded.  Depending upon the source, approximately 72% (CNBC, Bloomberg) of the volume is the result of black box algorithmic trading.  Did stocks decline to that proverbial magic level where these mathematical formulas suggest was value?

Speaking of volatility, equities were volatile again yesterday, erasing almost a 135 point gain to end lower by 70 points.  There were reports that China may consider reducing its position in European bonds spurring concerns that the European credit crisis will worsen.

Today revised first quarter GDP is released.  What inferences will be made?  Consensus is expecting a nominal upward revision to 3.4%.  Weekly jobless claims are also posted.  Will there be another upside surprise or was last week just an aberration in this volatile indicator?

Last night the foreign markets were up. London was up 1.85%, Paris up 2.10% and Frankfurt up 2.29%.  Japan was 1.23% and Hang Sang up 1.22%.

The Dow should open sharply higher as China stated it remains a long term investor in Europe. The 10-year off 22/32 to yield 3.27%.