Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
An interesting first week of the 2012… we had mentioned coming into the week that the “dividend” stocks had run so far (alone) that for this rally to continue we’d need to start seeing some form of rotation. This happened, especially on the first trading day of the year as the market shot up – and all the Nov/Dec’s winners were dumped, while the losers of late 2011 were embraced. Part of this was due to “better” purchasing manager’s data (mostly in the U.S. frankly) and part of it could simply be the truism that institutions dump their losers for (a) tax purposes and (b) to try to fool their investor base as to what they own. Now we need to see if this rotation continues or if it was a short term reflex. With economic data dumpy in Europe and not so hot in Chindia it is hard to build a ‘reinflation’ or ‘re-acceleration’ case for the globe but that is where the money went last week. Albeit, very low volume…
That said the entire week’s gain in the indexes literally came in the opening minutes of trade…. there was a massive gap up to start the year on Tuesday and by Friday’s close the market was… fractionally down from Tuesday’s gap up open. So you had to come into the year, guns blazing, heavily invested… in last year’s losers no less, to be “winning” last week. I’d also point out the bond market is not buying this rally, as 10 year yields remain at 2% or below. But with the Fed stepping on the neck of U.S. bonds it is difficult to tell what the ‘free market’ price is supposed to be, since there is no free market.
Most of the heavy lifting of economic data is done the first week of the month, so this week we see Merkozy reunited. (sing along with me…. “Reunited and it feels so goooood….”) With the political situation in France it might soon be the end of Sarkozy and by definition Merkozy, so enjoy it while it lasts. But on a more serious note, Europe has been mentally put into a closet for the past three weeks as it has been generally ignored. Meanwhile, ten year yields on Italian debt remain at or above the 7% range which two months ago caused panic… but now causes a yawn. It seems the market is for now content with the backdoor handouts of the ECB via the 3 year LTRO – anything that can kick the can of course placates a speculator class whose vision of long term is “the end of this week”. On that note we have Spanish and Italian auctions coming down the pike this week.
Earnings season begins slowly this week with the traditional miss by Alcoa … ok ok, every so often they beat estimates but really it’s not a fun earnings season unless Alcoa stubs its foot. The real action begins next week and we’ve of course already seen quite a few pre-announcements and we could see a lot more friction in the earnings season than normal – the stronger dollar might nick some of the multi nationals at the margins.
In the U.S., retail sales Thursday should be the only major report anyone pays attention to but from reading various stories it’s the same old story in the sector – the high end is booming as the have’s and have not’s continue to segregate, while sales are up year over year for the other groups … but profits squeezed due to discounting. I will also be interested in how the consumer confidence report shakes out Friday only because gas prices are starting to spike and I often wonder if consumer confidence has now become nothing more but the inverse of gasoline prices. If this thesis is correct, consumer confidence should begin stalling out – please note, these readings in the 60s and low 70s are consistent with recession, not any form of expansion. But that does not stop Wall Street from celebrating any uptick as if it is anything more than a marginal rounding error. Via Calculated Risk:
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