Farrell: Time For A Correction?
Enough with the macro/political/international heavy lifting for a while. Back to boring stuff like the market and stocks and economic indicators.
The market slumped on Thursday not directly because of President Obama's speech.
The market needs a correction after a 60% gain from last March and the news of the day Thursday was that Greece was looking for some help. I have no idea how accurate such a story might be, and I doubt Greece is on the precipice. They are facing more a liquidity crisis right now and not a solvency crisis, but the rumors will fly. There were some comments from a few officials including an International Money Fund guy named Lipsky who said they were ready to help Greece. The NY Times also carried a story that Germany, France and other European countries have been in discussions. That was enough to fan the flames. The Financial Times had a story the other day that Goldman was trying to sell $25 billion of Greek bonds to China and the Chinese appetite isn't that big, or may not be there at all. (But isn't half the world trying to sell $25 bills to the Chinese?) Spreads between Greek bonds and German bonds (considered the best in Euro class) widened to the greatest spread ever, so the situation needs to be addressed.
The market was also nervous over the Bernanke confirmation vote which kept getting rescheduled. And perhaps as unnerving as anything else, the story was going around that the new budget for fiscal 2011 will include taxation of foreign earnings. Most had thought that was a dead issue and its resurrection, if indeed true, would be a negative for stocks.
But life continued on and durable goods orders for December of 2009 were reported as +.3% which appeared to be a big shortfall from the hoped for gain of 2%. It wasn't as bad as it seemed since a thing called "non defense aircraft" was off -38% after falling -40% in November of '09. But Boeing booked 59 aircraft (that would be non defense aircraft) in December and only 9 in November so the headline number looks off and will probably have to be revised. Ex-transportation, "core" orders were up +.9% which is solid enough. Business investment was also up and once businesses invest, employment gains follow. In the past six months durable goods are up at an almost 12% annual rate, the best in some time.
Unemployment claims were reported as well for last week and fell less than had been hoped, down -8000 to 470,000. The four week moving average rose 9,500 to 456,750 and continuing claims fell a bit from 4.66 million to 4.6. But the fall in continuing claims looked like it was people running out of benefits rather than getting hired since initial claims are still so high. The consensus on the Street is the next employment report will show a gain of 27,000 jobs, but if claims don't behave that number will be in question. The next non-farm payroll report is in two weeks, February 5th.
Also, new home sales for the month of December were only at a 324,000 annual pace. 2009's final tally was 372,000 which is the lowest total since records have kept. There were some hiccups because of the delay in extending the tax credit, but the number is still terrible.
I have been thinking for a while that a 10-12% correction was needed more just because we haven't had one than anything else. If that were to occur the S&P 500 would fall back to 1010 or so (1184 at the time of this writing). Coincidentally, the 200 day moving average is at 1011 right now. We might be headed there and that would be a formidable support area.
Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.