Market Commentary

Stocks came under pressure yesterday.
December 18, 2009

Stocks came under pressure yesterday.  In my view the data on balance was stronger than expected. The Philadelphia Fed was moderately greater than the consensus view thus making the dramatic decline in the Empire State index reported earlier in the week as an isolated phenomenon.  However I again caution from drawing broad based conclusions from these regional manufacturing surveys for individually they have little correlation back to the national ISM.

The Index of Leading Economic Indicators (LEI) rose by 0.9% versus the consensus view of a 0.7% expected rise.  This is its eighth consecutive increase, the longest streak since the 17 month streak commencing March 2003 and ending July 2004.  The six month annual rate is 9.6%, down about 1% from October but by all measures is robust.  The LEI is designed to measure economic activity three to six months into the future.

I must write unemployment claims were mixed.  Initial claims rose for the second consecutive week to a four week high however I wonder if it is possible bad weather contributed to this increase.  However the four week average fell for the fifteenth straight week.  If this data holds, there is a strong possibility that there could be zero change in December’s nonfarm payrolls.

Perhaps the equity sell off was the result of what is really lurking behind the proverbial curtain.  The dollar did rally partially predicated upon fears of credit downgrades for Greece, Ireland, Spain, Italy and Portugal.

And then there was Citigroup.  I think however it was bullish Citi was able to raise $20.8 billion, an amount touted by the company as the largest equity offering in history.  Eight months ago such a thought would have been considered outlandish.

Can I suggest the markets are fearful growth might be too strong thus forcing a change in monetary policy sooner than expected?  What about profit margins and productivity if the economy is stronger than expected, productivity and margins enhanced by massive layoffs?  

If the economy is expanding at an unexpected pace, would job creation not occur sooner thus impact profit projections, projections amplified negatively by a higher risk free rate of return?  As noted several weeks ago, for the exception of the last two recessions, job creation began within 60-90 days after the end of every post WWII recession.

What will occur today?  It is a data less day therefore markets will trade upon the headlines.

Last night the foreign markets were mixed. London was up 0.74%, Paris up 0.30% and Frankfurt up 0.55%.  Japan was down 0.21% and Hang Sang down 0.80%.

The Dow should open normally higher as several high profile technology companies exceeded earnings expectations.  The 10-year is unchanged at a 3.48% yield.