Market Insider: Wednesday Look Ahead
Stocks head into Wednesday tentatively, as investors once more look to Washington for clarity on the Obama Administration's budget and policies.
Traders are also watching a market teetering on 12-year lows to see if stocks can hold onto current levels. "It's bumbling around. It doesn't know what to do," said Art Cashin, UBS director of floor operations. "It's always nervous when the government figures are on TV."
The Dow finished 37 points lower at 6726, and the S&P 500 slipped 4.49 to 696.33, its lowest close since October, 1996. "This is a kind of weak reflex rally on an oversold condition," said Cashin. Stocks had been higher Tuesday before closing lower.
"It'll be interesting to see if they go after the S and P. They're at 1995 support levels - 680 to 685. To me, that will be very important because after that you could start hitting air pockets to levels you'd rather not think about," he said.
Treasury Secretary Timothy Geithner Wednesday heads to Capitol Hill for a second day to discuss President Obama's budget, this time before the Senate Finance Committee at 10 a.m. The Senate Budget Committee continues its hearing with testimony from Peter Orszag, director of the Office of Management and Budget. Geithner testified at the House Ways and Means Committee Tuesday while Fed Chairman Ben Bernanke testified before the Senate Budget Committee.
Treasury also unveils details of the Obama Administration's foreclosure relief plan Wednesday and will clarify guidelines for homeowners on who qualifies for the program. On the data front, ADP's employment report is released at 8:15 a.m. Economists expect the ADP number to show a loss of 630,000. ISM non-manufacturing data is reported at 10 a.m., and the Fed's Beige Book on the economy is released at 2 p.m.
Another hearing worth watching Wednesday is the Senate Governmental Affairs Committee on tax haven banks and U.S. tax compliance. Representatives from IRS, UBS, the Justice Department and the Swiss Group Managing Board will discuss tax havens and the disclosure of U.S. clients with Swiss bank accounts.
Earnings reports are expected from Toll Brothers, Costco and B.J.'s Wholesale.
Did He Say Buy?
Comments from President Obama on the stock market got traders chattering Tuesday morning, but by mid afternoon the White House press office back pedaled on the comment. Here's what the president said:
"What you're now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it," said President Obama.
Cashin said Obama is not the first president to comment on stocks. "You have to remember that President Nixon in 1973/1974 said he would be buying stocks ... so bear markets have a way of bringing those things out," he said.
The president got high marks in the latest NBC News/Wall Street Journal poll. His approval rating was 60 percent. There was also a sharp jump to 41 percent of Americans who now think the country is headed in the right direction. This compares to 26 percent in mid-January, before Obama took office, and is the highest level since 2004. A stunning two-thirds of those polled say they are hopeful about Obama's leadership and plans.
The survey of 1,007 adults showed that Americans are worried about the level of government spending. Fifty-one percent said they want government to do more to address the nation's problems, but 40 percent say they think it is doing too much.
As Wall Street looks ahead to Friday's jobs data, some economists are busy looking to lower their forecasts for the first quarter. Joseph LaVorgna, chief economist at Deutsche Bank revised his forecast for the first quarter to show an even deeper contraction than the 6.2 percent decline in fourth quarter real GDP. "Presently, we are tallying up -8.0 percent current real GDP. However, the risks are skewed heavily to the downside, so we would not be surprised after revisions, if output ended up being down closer to -10 percent," LaVorgna said in a note. He also expects fourth quarter GDP to be revised further to -6.5 percent because of construction figures, released Monday which contain revisions for November and December.
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Mesirow Financial chief economist Diane Swonk said she is looking at her -5 percent first quarter GDP forecast with an eye to reducing it in the next couple of days. "One silver lining for the future is that I'm talking to a few firms that are pushing down their inventory below where they should be for weak demand," she said. Inventory levels are important because in a recovery, firms need to rebuild and could cause a snap back in activity.
"I had the first quarter a little over 5 percent down. The second quarter doesn't look like growth now," she said. Swonk said she expects to see an unemployment rate of close to 8 percent Friday when the government releases the February employment report. "We lost between 20,000 and 30,000 jobs a day in the month of February," she said.
The dollar slipped 0.08 against the euro Tuesday and rose 0.90 percent against the yen . Selling in Treasurys pushed the yield on the 10-year Treasury to 2.939 percent. Currency traders will be watching U.K. Prime Minister Gordan Brown address a joint session of Congress at 11 a.m.
But Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said Brown's address will not have an impact. "It's nice for photos. It's nice for the politicos but for us who are focused on the crisis, we wouldn't' expect much ... It could be one of Brown's last trips to the U.S. ... He has an election next year and he's running behind in the polls."
Chandler said Brown is likely to spell out the problems, describe what Britain is doing, and then seek a unified effort on the problems in advance of the G-20 meeting in April. Chandler said there is some irony to the posture of Europe heading into the G20. "Europe has a lot of votes in the IMF ... and Europe doesn't want to give up its votes to rising powers at the G20 meeting, yet they want China and OPEC countries to fund a n new subscriptions so that the IMF has more money to give to Europeans," he said.
With the exception of Pakistan, IMF programs so far have gone to Iceland and countries like Latvia, Ukraine and Belarus. "Europe says they can take care of their own but the IMF is helping them out. These are all countries that Western Europe has exposure to," said Chandler.
Chandler said an event he is watching carefully this week is the Chinese National Party Congress which convenes Thursday. "The talk is they could double the stimulus package," he said.
Stocks to Watch
Palm shares slumped in the after hours session after it said revenues would be sharply lower than expected.
Traders are keeping a close eye on GE . The widely held stock continued to slide in the after hours, as the GE Capital credit default swaps widened dramatically. The CDS are basically an insurance policy purchased on company and sovereign debt. UBS Monday said GE's recent dividend cut does not eliminate uncertainty around the company and that GE may need to raise additional capital for GE Capital.
GE said it has taken aggressive steps to strengthen the capital base and liquidity of GE Capital, weather the current economic storm and be well positioned for long-term growth. A spokesman said the company has $60 billion of equity and nearly $50 billion of cash on the balance sheet
GE owns NBC Universal, the parent of CNBC.
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