Market Sentiment Update
Market sentiment edged a point higher to 49 as the S&P advanced 2.2% during another volatile week.
The debt ceiling clock is ticking this week as politics in Washington are strangling the markets. At stake, the small issue of creditworthiness of the United States. The very public spat has the markets nervous and has already done long term damage to the United States' reputation. We believe there is a high probability Congress will compromise and raise the legal borrowing cap in time, but until there is a resolution, equity markets can expect more market volatility.
Despite the antics in DC, corporations have been quietly reporting solid earnings. Out of the 25% of the S&P 500 constituents that have reported, over 80% have beaten estimates. Apple (AAPL) blew away all expectations again, with the stock now hovering around $400. We wish Steve Jobs could sprinkle a little of his magic in the beltway and get the economy and employment numbers going in the right way – mmm beltway App Steve…? Goldman (GS) missed their numbers but the cynic in me believes they took the risk down because they are tired of being the poster child for Wall Street greed and needed a break… They’ll be back off the ropes with record numbers soon no doubt. Until the debt ceiling gets resolved all other news takes a second seat this week.
Market Sentiment Update
Baker Avenue's market sentiment indicator remains negative at 48 and the S&P 500 declined 2.1%.
The swift rally that started in late June is turning into a distant memory as the attempted austerity of Greece has turned the focus of default risk to Italy. Moody’s put the U.S. on negative watch last week to highlight the troubles in our own deficit spending. The August 2 deadline on the debt ceiling deadlines continues to approach rapidly. Although a deal has not yet been announced, we believe there is every incentive for Congress and the White House to come up with a solution soon.
On a positive note, earnings season is now in full swing with a large list of companies reporting this week. The tally is very early in the process but 18 out of 21 companies in the S&P 500 have reported positive surprises. However, this has only gotten mixed results in share prices. Apple and Goldman Sachs will highlight a busy week of conference calls. Financials continue to be the laggards while the energy and health care sectors are the top performers in 2011.
Since sentiment is negative, a continued defensive posture is warranted as capital preservation becomes most important.
Market Sentiment Update
Baker Avenue's market sentiment indicator rose 8 points to 48 last week. The S&P 500 posted a gain of only 0.3%, but the NASDAQ advanced 1.6%.
Stocks opened lower this week on fears that Italy would be the next victim of the European debt crisis. Aside from Greece, Italy has the highest level of sovereign debt relative to its gross domestic product.
Today starts the beginning of earnings season with Alcoa reporting strong revenue numbers that topped expectations, but profits were only in line with estimates. Alcoa was flat after the earnings report in after-hours trading.
Other marquee names expecting to report earnings this week include Google and JP Morgan on Thursday. Investors should expect higher than normal volatility during earnings season as earnings news will likely drive day to day movements in the market.
Market Sentiment Update
Baker Avenue's market sentiment indicator rose to 40 last week and the S&P 500 posted a 5 day advance of 5.6%.
The release of bailout funds to Greece fueled the advance last week. All ten sectors finished the week higher with energy, technology, industrials and consumer discretionary each advancing more than 6%. The employment report on Friday and debt ceiling discussions in Washington will turn the focus away from Greece and back to the domestic economy this week. Next week marks the start of earnings season and conference call discussions will focus on any weakness in the second half of the quarter. Oil advanced 4.1% on the week despite the release from the strategic petroleum reserve which was announced on June 23rd. The SPR release was a political move to replace Libyan production and stimulate the consumer but it is now unlikely to make any impact on prices at the pump.
Since sentiment is negative, a defensive posture is warranted as the risks mentioned above continue to create more volatility than is warranted for a normal equity environment. The catalysts to reinvest All Cap Core assets back into the market are (1) Market Sentiment rising above 50, (2) Market Sentiment dropping to 25 suggesting an oversold market, or (3) a "Blue Buy" opportunity with Market Sentiment dropping below 10.
Market Sentiment Update
Baker Avenue's market sentiment indicator rose slightly to 31 last week, but remains negative. The markets remained very volatile with the S&P 500 posting a modest 0.2% loss for the week.
Greece continues to top the daily headlines and intraday rallies have been initiated by confidence and austerity votes. This is eerily reminiscent of the congressional and senate votes in 2008 on TARP. The market is more likely to find a bottom not on a vote but on its own through traditional selling exhaustion.
A day after a sleepy fed meeting the International Energy Agency(IEA) decided to release oil from the strategic petroleum reserve. This is a simulative move for the economy to the extent that it is successful in suppressing prices at the pump during the summer driving season. It also highlights there is more concern about inflation than policy makers and central bankers let on. The Bernanke press conference highlighted this as the tone of his voice was wavering despite the message being the familiar words on inflation and growth. Materials posted the largest gain last week bouncing after trading lower six of the last seven weeks.
Since sentiment is negative, a defensive posture is warranted as the risks mentioned above continue to create more volatility than is warranted for a normal equity environment. The catalysts to reinvest All Cap Core assets back into the market are (1) Market Sentiment rising above 50, (2) Market Sentiment dropping to 25 suggesting an oversold market, or (3) a "Blue Buy" opportunity with Market Sentiment dropping below 10.
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