The 'Goldilocks' mentality is ruling the stock market
Recapping the day's news and newsmakers through the lens of CNBC.
Market watchers are keeping a close eye on a slew of data this week, hoping for "Goldilocks numbers"—meaning not too good to up anxiety about the Fed rolling back its stimulus earlier than expected, but not too bad to suggest that the U.S. economic recovery has faltered.
The first numbers were just right—U.S. manufacturing activity was up in June, bolstered by new orders and higher production, but not up too much to cause discomfort. The Institute for Supply Management said its index of factory activity increased to 50.9 in June. That's up from 49 in May, which was the lowest reading in four years. Any number over 50 suggests growth.
Spending on residential homes was up by 0.5 percent in May compared with April, according to the Commerce Department. But spending on nonresidential projects (offices and shopping malls) fell by 1.4 percent. Again, tempered good news.
All along, the Fed has said that tapering would be tied to employment—that number comes out Friday. If you're in the game of speculating, though, one of the ISM data points showed that factories cut jobs in June.
"It is all about jobs. In general, most analysts and economists definitely tried to spin weak into strong. There is no doubt about it. The cost-benefit analysis concept seems to get lost. When you check out the Fed, and you check it out versus inputs and output, what tends to happen is we have all of these programs and we see what the data is, and it is no surprise, I think, that we try to spin these mediocre, middling Goldilocks numbers to keep the Fed in the game and it really isn't about inputs and outputs."—CNBC's Rick Santelli
Bulls on Parade?
Not long after the market panicked over the Fed signaling a time frame for tapering its bond-buying program, market watchers have begun speculating about the early stage of a secular bull market. Sure, volatility will stay with us for a while longer, but every dip should be treated as a buying opportunity, especially since there's so much cash on the sidelines. A Piper Jaffray strategist is among the more bullish, boasting a S&P 500 target of 1,700 this year and 2,000 next year.
"People are still hung up on the data point du jour. They're so desperately seeking a trend of some sort, be it good or bad, that every single data point that comes out they latch onto and if it is good, they run the market and if it is bad, they sell it. I don't see that changing any time over the rest of the year."— U.S. Trust President Keith Banks
"We think the stock market is ready to make new highs once again. We continue to see money flow coming out of fixed income and coming back into equity funds, and with our charts we continue to see the economic sensitive sectors of the market such as consumer cyclical, industrials and financials continuing to show many constructive, longer-term charts."—Craig Johnson, Piper Jaffray senior technical strategist
Death to Deductions?
Ask any American entrepreneur about what their biggest hurdle is to growing their business and adding headcount, and they're sure to answer taxes and regulations. Erskine Bowles, co-chairman of the Debt Commission and a Friend of Bill (Clinton), said the tax code needs to be zeroed out, wiped clean of any deductions and loopholes and then re-examined. Mortgage deduction? Gone … until it can be debated and justified. The same goes for charitable deductions. Everything, in fact. Only things that create economic growth or jobs, or level the social playing field as part of policy should be let back in. To borrow a saying, the tax code must be destroyed to be saved. Of course, it'll take a bipartisan approach.
"Our tax code hasn't been reformed since 1986. That's 27 years. Just think about how the world has changed economically over the last 27 years and how the U.S.'s competitive position has changed during that time period. Think about the fact that money flows freely now and we have a tax code that is not only inefficient and ineffective, it's also globally anti-competitive."—Bowles
"You start out by eliminating everything. And then you require people to come back and justify why they going to add something back."—Bowles
(Apple) Pie in the Sky?
Big news this week at Apple—the iPhone 5s is expected soon and the company's recent patent filings in Japan included a wristwatch device. On top of the company's sagging share price, at least one analyst has upgraded Apple to a "strong buy" and given it a price target of $600. He thinks Apple's sagging share price was just end-of-quarter action and that the stock has found a base of $390 to $400.
"As the iPhone 5 and the 5S gain volume, and discounted manufacturing costs based on that volume, I think the gross margins will tick up and start lapping the really weak gross margins of the iPhone 5 launch."—Tavis McCourt, Raymond James Managing Director
Just when you thought that the cost of college couldn't go any higher, the rate on all new subsidized Stafford educational loans doubled Monday to 6.8 percent as a group of senators failed to agree to a plan. A bipartisan remedy that would have tied loan rates to Treasury bill rates and a Democrat-led one-year rate freeze both failed. An estimated seven million students who take out loans starting today will feel the pain.
"People graduating college, on average, are $27,000 in debt, which has a huge impact on their lives. They are unable to buy homes, unable to buy cars and are really struggling. Now what we are saying to this entire generation is "we're going to double your interest rate." I think that is totally absurd for the middle class of this country and the entire economy."—Sen. Bernie Sanders (I-Vt.)
—By Doug Cubberley, Special to CNBC.com.