Farrell: The Market is Screaming, Are You Listening?
When in doubt, make a list.
So I do a lot of list making since I spend a lot of time in doubt.
I wonder if those guys always so certain of themselves really are so certain of themselves or if they just like to speak with deep voices and sound so certain of themselves. I think we will continue to fight the noble fight and somehow come through the morass we find ourselves in, but I'm not sure.
With the two year Treasury bond trading below .6% at one point on Tuesday (a record low) and the 10 year Treasury below 3% (it was worse post the Lehman failurecoming within a coffee cup visit of 2%, but sub 3% is something) the market is screaming the world economy is slowing, slowing, slowing. (Follow Treasuries Here.)
The Conference Board adjusted its estimate of growth for Chinain April from a gain of 1.7% to a token +.3%. That compares with the March gain of +1.2% and comes as quite a surprise. One month does not make a trend and as the adjustment shows, adjustments happen and can go either way. But the market is so nervous and lacking in conviction that any piece of news can move it and move it substantially. I said in yesterday's note that I thought the market would be boring this week waiting for the jobs numbers that comes this Friday. That'll teach you to listen to me. But the China news blindsided everyone and now we can only wish and hope for boring.
So if the market is seemingly worried about a slowdown worldwide and the possibility of disinflation/deflation, I figure let's make a list.
The list is of those large capitalization stocks in the S&P 100that raised their dividend the last twelve months.
If a company has the confidence, balance sheet, and cash flow strength to raise a dividend during a very uncertain time, then maybe we should look hard at it. Twenty two of the thirty eight companies on this list have yields that are greater than the yield on the 10 year Treasury. It's not a list of recommended stocks, just food for thought.
The Case Shiller Home Price Index- not seasonally adjusted which I am told is the purer way to look at it - was up .8% sequentially in April. That is the first monthly gain in seven (again, not seasonally adjusted) after a -.5% decline in March over February. On a year over year basis the 20 city index rose by 3.8% in April. This is good news but was dismissed since the expiration of the tax credit could well have skewed the numbers.
Bad news was the Conference Board's consumer sentiment survey. The survey fell to 52.9 from 62.7 the month before. The steep fall was probably due to the decline in stock prices since May. 52.9 leaves the survey in the 50-60 range it has fluctuated in for much of the year. The adjustment of China's growth estimate, lousy consumer confidence and renewed worries about European debt and credit-worthiness (a one year liquidity facility is being allowed to expire and the worry is banks are still dependent on the ECB for short term credit and won't loan to one another) all proved too much for a fragile market. Asia fell, Europe followed and the US dove into the tank. A CNBC report that noted strategist Abby Joseph Cohenbelieves stocks would rally 16% by year end wasn't a strong enough levee against the tide of pessimism.
The S&P 500 averagefinished at 1041, off 33 points, and perilously close to the 1035-1040 level we have been hoping would be the bottom of a trading range. The level of skepticism indicates we won't stop here. The next obvious level if we don't rebound is around 1000 on the S&P. That would be a 38% retracement of the rally and is figured using the Fibonacci sequence we have mentioned before. Two things: you don't need to know what it is or how it is figured, just that people that trade the market for a living look at it and use it. To an extent it is then a self fulfilling tool.
Also, as I have said before, when fundamental types turn to technical jargon, it's because they don't have a clue! Think of yesterday's letter. Or don't think - react.
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