What to expect this week in the market
The first question - is the pain over for now? I think so. At least, I think the most dramatic pullbacks have happened. Stocks will gyrate on the basis of more economic news or specific corporate earnings releases, but I think overall the big drops just happened and we will see a slow, steady sinking with a few false rallies along the way.
The market mood will be to second guess the Fed and to wonder how bad the pain is.
Supporting the theory that the big swings are done for now is a theory about last week's major dive. There is speculation that Societe Generale, a major French bank, had to unbundle a lot of positions after finding a $7B fraud on its books. They were accountable for 10% of all trades the day the market dipped ~500 points.
Which goes back to what I have been saying - a lot of this mess continues to be driven by funds and financial firms that need cash to cover their positions. Cash is flowing out and not in to the markets. This won't reverse for at least another quarter (say, April).
The market will gyrate according to some economic news events this week:
1. New Housing Sales (December results) - I doubt this will bring any surprises
2. Durable Goods Orders (December results) & Car Sales - This is a very key event. Folks are watching to see if the recession is biting and consumers are pulling back. Also, this would be where we would start to see signs of export growth. I would expect to see nasty consumer belt tightening and some signs of export life, even in the non-airplane sector.
For planes, Boeing messed up and delayed its flagship 787 Dreamliner, the new plane. So there could be some dips here.
3. Petroleum Report (for last week) - We care about this because oil price fluctuations do have some blowback on our oil related stocks. Fundamentally, the question that is being asked each week is whether a US slowdown will drop oil consumption.
An example of how skittish the market can be - oil dropped from $100 a barrel to $90 a barrel in early January because reserves shot up. The reason reserves shot up: importers delayed shipments by a few days because of the tax year an dthen had the ships dock all at once, creating a spike in supplies. But the market reacted to the absolute number without looking at the cause.
4. Fed FOMC meeting - This is probably the biggest event. The Fed just lowered rates 0.75% and there is speculation that they may do so again. Actually, I am thinking that they may do nothing or even start to consider re-raising rates.
That is, I think that they have overshot - too much rate drop too soon. The question is: what do they see? In 6 months they have gone from a Goldilocks scenario to panic. I think they are comfortable with a regular recession but the fear of widespread housing foreclosures has them spooked. I don't think they care about Joe Sixpack - they care about the banks and companies that used loans to prop up business (like car companies).
Dropping rates handed lenders billions back exactly at a time when their cost of business was rising. For example, Acme Corp. is running on fumes, very dependent on cash flow. Moody's is about to downgrade them, which would raise their costs of borrowing and threaten their ability to stay afloat. That downgrade will still happen, but the interest rates themselves are suddenly 2%+ lower, which basically neutralizes the impact of any downgrade.
In any case, the market is on pins-and-needles as it awaits the Fed's view of economic life.
5. Jobless claims - Each week it is up or down a trickle, but ignore the actual number. The data is not a real reflection of current events because it gets massaged and tweaked. Focus instead on what we are reading. Every week there are major layoffs and store closings, not major expansions. That is the real data that matters.
Some key earnings releases that could help us:
Halliburton - lots of overlap and sector compatibility with IO, FWLT, NOV, and so on
Corning - Think flat panels and then TRID
This week should bring us TRID and MICC earnings releases.
The market mood will be to second guess the Fed and to wonder how bad the pain is.
Supporting the theory that the big swings are done for now is a theory about last week's major dive. There is speculation that Societe Generale, a major French bank, had to unbundle a lot of positions after finding a $7B fraud on its books. They were accountable for 10% of all trades the day the market dipped ~500 points.
Which goes back to what I have been saying - a lot of this mess continues to be driven by funds and financial firms that need cash to cover their positions. Cash is flowing out and not in to the markets. This won't reverse for at least another quarter (say, April).
The market will gyrate according to some economic news events this week:
1. New Housing Sales (December results) - I doubt this will bring any surprises
2. Durable Goods Orders (December results) & Car Sales - This is a very key event. Folks are watching to see if the recession is biting and consumers are pulling back. Also, this would be where we would start to see signs of export growth. I would expect to see nasty consumer belt tightening and some signs of export life, even in the non-airplane sector.
For planes, Boeing messed up and delayed its flagship 787 Dreamliner, the new plane. So there could be some dips here.
3. Petroleum Report (for last week) - We care about this because oil price fluctuations do have some blowback on our oil related stocks. Fundamentally, the question that is being asked each week is whether a US slowdown will drop oil consumption.
An example of how skittish the market can be - oil dropped from $100 a barrel to $90 a barrel in early January because reserves shot up. The reason reserves shot up: importers delayed shipments by a few days because of the tax year an dthen had the ships dock all at once, creating a spike in supplies. But the market reacted to the absolute number without looking at the cause.
4. Fed FOMC meeting - This is probably the biggest event. The Fed just lowered rates 0.75% and there is speculation that they may do so again. Actually, I am thinking that they may do nothing or even start to consider re-raising rates.
That is, I think that they have overshot - too much rate drop too soon. The question is: what do they see? In 6 months they have gone from a Goldilocks scenario to panic. I think they are comfortable with a regular recession but the fear of widespread housing foreclosures has them spooked. I don't think they care about Joe Sixpack - they care about the banks and companies that used loans to prop up business (like car companies).
Dropping rates handed lenders billions back exactly at a time when their cost of business was rising. For example, Acme Corp. is running on fumes, very dependent on cash flow. Moody's is about to downgrade them, which would raise their costs of borrowing and threaten their ability to stay afloat. That downgrade will still happen, but the interest rates themselves are suddenly 2%+ lower, which basically neutralizes the impact of any downgrade.
In any case, the market is on pins-and-needles as it awaits the Fed's view of economic life.
5. Jobless claims - Each week it is up or down a trickle, but ignore the actual number. The data is not a real reflection of current events because it gets massaged and tweaked. Focus instead on what we are reading. Every week there are major layoffs and store closings, not major expansions. That is the real data that matters.
Some key earnings releases that could help us:
Halliburton - lots of overlap and sector compatibility with IO, FWLT, NOV, and so on
Corning - Think flat panels and then TRID
This week should bring us TRID and MICC earnings releases.
posted by Andrew at
5:42 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home