Market Commentary

The Dow declined about 10% for the quarter.
July 01, 2010

The Dow declined about 10% for the quarter.  The S & P 500 and NASDAQ were off 12%.  In fact as per Bloomberg the NASDAQ has now declined 8 consecutive days, the longest stretch since 2006.  Since the S & P’s apex in April, this marquee  index has fallen about 15.5%.  The NASDAQ is off about 16.8% and the Dow off 13.2% since their late April peak.

The reasons are well known…sovereign debt concerns, fears of a second dip recession, profits, lack of job growth, etc.  Will the third quarter be the inverse?  Ultimately profits and interest rates dictates direction and everything else is noise.   Both primary determinates are extremely favorable as is valuations and sentiment.  It is against this backdrop why I believe the odds are greater than 50% stocks will advance during the summer period.

I wish to reiterate the major risk variable now facing the markets/economy is political rather than event.  Wow!  At this juncture Washington is unquantifiable.  The markets do not operate efficiently in a vacuum or when risk cannot be accurately judged.  Over the next ninety days I believe the potential outcome of the November elections may become clearer which may perhaps assist prices.

Today is a large data day.  The ISM, pending home sales, construction spending, initial jobless claims as is Challenger Job cuts are released.  How will these statistics influence trading?  Or will all wait to act until tomorrow’s employment data is released before acting?

Yesterday stocks were relatively quiet ignoring a disappointing reading for the ADP Private Employment Survey and the possible downgrade of Spanish debt.  Late in the day stocks fell, I believe the result of algorithmic trading when a key technical level was violated on the S & P.

All have now become expert technicians bantering about this support level or that resistance point.  I believe yesterday’s late day decline, a drop that occurred about 2 hours after the news of a possible downgrade for Spanish debt, was the result of a self fulfilling prophecy surrounding technical analysis.  The 1040 level on the S & P was “violated” hence sell.

It is my opinion however once everyone believes something is going to occur the inverse happens.  It is against this backdrop why I think the primary determinates of market activity will gravitate back to earnings and jobs.  As evidenced by a 12% 60 day drop, all markets are expecting lack luster hiring and disappointing profit reports.  As consistently noted I think the inverse is the reality.

What will happen today?

Last night the foreign markets were down. London was down 1.0%, Paris down 1.74% and Frankfurt down 0.70%.  Japan was down 2.04% and Hang Sang down 0.59%.

The Dow should open nominally lower.  The 10-year is unchanged.