Yesterday, the markets avoided what could have been a disastrous day given the data flow from the MACRO calendar. In early trading today, U.S. Futures and commodities are all higher on speculation that Ben will be good on his word.
Also after the close, the ABC consumer confidence index rose to -45 in the week ending December 13 -up 2 points from a week earlier.
The S&P 500 was lower on Tuesday, declining by 0.6%. From where I sit the MACRO calendar was unfavorable and the PPI data was troublesome. The Financial (XLF) continues to struggle as the banking group is drowning in a sea of dilutive capital raises. Not to mention the reality that the FED needs to raise interest rates.
On the MACRO calendar inflation is rearing its ugly head with a 1.8% month-to-month gain in November PPI – 1% above expectations. In addition, the regional manufacturing recovery lost some momentum as the Empire index fell to 2.6 in December from 23.5 in November; the lowest level in five months. The one bright spot was industrial production, which rose 0.8% last month vs. consensus expectations for a 0.5% increase.
The dollar index rose 0.8% yesterday to close at 76.96. Despite all the bad news and the strength in the Dollar the market managed to avoid a major breakdown.
Yesterday, every sector declined except Energy (XLE) and Healthcare (XLV). Several sectors that benefit from the RECOVERY theme outperformed – Energy (XLE), Consumer Discretionary (XLY) and Industrials (XLI).
The Energy (XLE) was the best performing sector yesterday, benefiting from the potential for more M&A activity and a stronger commodity. January crude improved $1.18 at $70.69 a barrel, its first increase in ten days. Crude benefited from the potential for increased demand coming from the better-than-expected increase in November industrial production; an upwardly revised 2010 economic outlook from Germany and OPEC boosted its 2010 demand forecast.
The Healthcare (XLV), especially managed care stocks (HMO +0.8%) continued to benefit from expectations for a more watered down reform bill out of the Senate.
The Consumer Discretionary (XLY) was the third best performing sector yesterday. The XLY outperformed although the retail group was one of the worst performers yesterday with the S&P Retail Index down 1.2%. The retail sector was dragged down by Best Buy. While BBY reported better-than-expected fiscal Q3 EPS, the quality was low. In addition, the top line was disappointing and it now expects a lower fiscal Q4 gross profit margin due to a continued negative mix shift.
From a risk management standpoint, the ranges for the S&P 500, the Dollar Index and the VIX are seen in the charts below. The range for the S&P 500 is 15 points or 1.0% upside and 1.0% downside. At the time of writing the major market futures are trading higher.
In early trading today, crude oil rose for a second day before a report forecast to show that U.S. crude inventories declined last week. The consensus believes that the Energy Department will likely report that stockpiles dropped 2 million barrels for the week ended December 11. The Research Edge Quant models have the following levels for OIL – buy Trade (68.91) and Sell Trade (74.30).
In London Gold is trading higher by 1.0% to $1,134. The Research Edge Quant models have the following levels for GOLD – buy Trade ($1,090) and Sell Trade ($1,149).
According to Bloomberg copper rose in London on the speculation of interest rates will remain low in the US. The Research Edge Quant models have the following levels for COPPER – buy Trade (3.12) and Sell Trade (3.26).