Client Market Update

June 29, 2012

Now that was fun! The reaction to the Fed, economic data, earnings, healthcare, China’s economy and the European sovereign debt issues has created greater volatility due to the focus on news. However, Friday showed that investors still want the market to move higher as buyers stepped into repair some of the damage caused by the response to the Healthcare bill and the Supreme Court decision. The rally Friday was due to the European Union working towards a plan for advancing a resolution to the debt and banking problems. What does all of this mean? Simply put, there is still a lack of clarity going forward relative to sustainable growth. Here is where we stand currently:

1) Slow to no growth. The US economy grew at less than 2% in the first quarter of 2012. Even Bernanke and the twelve dwarfs get this is doing nothing for further job creation. It is also impacting earnings growth for stocks. The growth rate for earnings in the first quarter was 8.3%, projections for the second quarter, ending Friday, is 6.1%. Not good for stocks looking forward.

2) Europe remains a wild-card relative to sovereign debt and their banks system. The Summit on Thursday and Friday established yet another agreement to fund the bailout process for the EU countries. They also agreed to use money from the monetary fund to make the banking system stable, i.e. Spain, Greece and Italy. This is only the beginning of solving he issues. This will continue to be a torn for investors. The global growth picture is getting weaker as a result. The euro zone growth rate is projected at zero percent… no growth.

3) Political uncertainty globally an in the the US. All the new regulations and the healthcare bill now decided by the Supreme Court, the European Union and its continuation, etc. etc. etc. They are keeping companies from being aggressive at hiring. The news around the world is focused on problems not growth and that remains a challenge going forward.

Those some of the big negatives, what about any positive issues?

1) It is the end of the month, the end of the quarter and the end of the first half of the year. This could bring money into the market as managers look to put some lipstick on their portfolio. We did see some of that last week, but we also saw how volatile markets can be when news go the wrong direction (Healthcare Bill) and when it goes the right direction (EU agreeing to work through the issues relatve to debt and banks). Money flowed into the broad markets on Friday and that could be a start to a small rally short term.

2) Earnings season and June economic data is just around the corner. Some believe this could be changing short term. Housing data was positive last week, and durable goods data improved as well. While it is wishful thinking, the rumor could be enough to rally the broad markets short term.

3) Volatility index (VIX) dropped back below 21 to help the sentiment relative to investors. It remained below that level even with the sell off on Thursday. The move higher on Friday pushed the index back to 18. The trend is lower and that is positive for stocks.

4) The yield on the ten year Treasury fell to 1.57% (support) Thursday. Bounced back to1.64% on Friday (1.7% is resistance). IF (big if) we can move above 1.7% the push higher in stocks could find some upside as a result. It is a sign of confidence that rates can rise along with stocks. i.e. the economy is strong enough to support higher interest rates. Big stretch, but a possibility short term.

The table shows what I am watching this week to add to portfolios. The emotions are running high and there is still plenty fo uncertainty looking forward. Some of the entry points were hit on Friday with the gap higher relative to Europe’s news. We have to be patient and work into positions if the upside is sustainable in the trading week.

You will receive confirmation of any positions placed in your account on the day they are placed. If you have any questions, comments or beliefs, feel free to share by email.

Have a Great Week,

Jim

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