Daily State of the Markets  Wednesday Morning – July 1, 2009 To listen to an Audio Version of the report, click on the Play button below:

Publishing Note: Markets are closed on Friday and I am traveling Monday morning, July 6th. Our normal morning report publishing schedule will resume Tuesday July 7th.

Good morning. Stocks limped home yesterday as the second quarter drew to a close. However, with the best quarterly gains in more than a decade, no one in the bull camp was terribly upset with the result. After all, the S&P saw a gain of +15.22% during the April through June period while the Dow rose +11.01% and the NASDAQ soared an impressive +20.05%.

Tuesday’s decline was fueled largely by the unexpected drop in the Consumer Confidence index. The confidence index fell 5.5 points to 49.3 in June from 54.8 in May, which was well below the consensus expectations for an increase of 1.1 points. And with this market being largely dependent on the data, the ensuing selloff wasn’t exactly surprising.

However, yesterday’s report on consumer confidence was in stark contrast to Friday’s University of Michigan Consumer Sentiment report, which came in much better than expected. If you will recall, the UofM index gained 2.1 points to 70.8, which was the largest jump since February 2008. And more importantly, the expectations component, which, as you might guess, is designed to signal how consumers are feeling about the future, was the major driver behind the increase.

The problem is the conflicting data doesn’t do much to settle the argument about the outlook for the consumer. The bears contend that the consumer is tapped out and in debt up to their eyeballs, so there is no reason to expect the coming economic rebound to be fueled by mom and pop’s desire to buy that boat or head to Hawaii on vacation. Yet on the other side of the aisle, our heroes in horns suggest that while the consumer is unlikely to return to the free spending days of the last decade, they ARE returning to the restaurants, the ballparks, and the malls for the occasional purchase-to-perk-me-up.

So, I guess we should chalk up the contradiction to the current “messy” phase of the economic recovery. While many of the indicators are indeed pointing in the right direction in terms of the economy, the degree of damage inflicted by the crisis means that we aren’t likely to see a “V” bottom. So, while we’re waiting for the “real” consumer to stand up, we should keep in mind that the batches of conflicting data are likely to continue for some time.

Turning to this morning and speaking of the data, it is the economic data that continues to be in focus with the ADP Employment report garnering a great deal of attention. The June report came in worse than expected as employment in the private sector fell by 473K, which was well below the consensus estimate for a drop of 395K. However, May’s figures were revised higher to -485K from -532K. In addition, Challenger reported that US planned job cuts for June were down -33% and that the total planned job cuts for June were the lowest since March 2008.

As a reminder, with the market closed on Friday, we will get the Big Kahuna of economic reports – the June Employment Report – tomorrow morning at 8:30 am.

Running through the rest of the pre-game indicators, the major overseas markets are mixed by region with Asia down and Europe up more than 1%. Crude futures are moving up again after yesterday’s drop with the latest quote showing oil trading higher by $1.21 to $71.10. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.595%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 37 points; the S&P’s are up about 4 points, while the NASDAQ looks to be about 5 points above fair value at the moment.

Don’t forget, ego is the enemy… and until next time, “may the bulls be with you!”

David D. Moenning
Founder TopStockPortfolios.com

 

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