Thursday, October 27, 2011. 9.25 a.m.
That was a close call.
As late as last evening it was looking like the euro-zone summit was going to be a dismal failure. The headlines in this morning’s Financial Times, which must have had to go to print late last night, were still that “Bond-holders resist write-down”, “Doubts Rise Over Rescue Fund Firepower”.
We’ll never know what a failure of the summit would have done to global stock markets that have been rallying on hope that something good would come from the meetings.
Because officials apparently worked late into the night and did hammer out an agreement that has possibilities.
Briefly, holders of Greek bonds, mostly international banks and financial firms, agreed to take a 50% write-down on the bonds as their contribution toward resolving the debt crisis. And agreement was reached by the 17 nations to increase the European bailout fund, the European Financial Stability Facility, to around 1 trillion euros ($1.39 trillion), not as much as hoped for but more than many thought was possible.
Numerous details still need to be revealed, which will keep the talking heads in business debating the pros and cons and shortfalls of the agreement. But stock markets, usually more accurate than the talking heads in their assessments, like the news.
Global stock markets, particularly in Europe, are surging on the news. The DJ Asia-Pacific Index closed up 2.9% last night, and the markets in Germany and France are up more than 5% this morning.
The important questions now will be which markets and sectors will most likely outperform.
Bonds are one area we are fairly certain will not perform well as a result.
It should be alright with paying subscribers if we reveal at this point that we have been on a sell signal for U.S. treasury bonds, with a position in an ‘inverse’ bond etf designed to make gains when bonds prices decline.
Bonds rallied as a safe haven when the stock market was in its summer correction, and also as the stock market became so wildly volatile. But since the stock market’s low in early October, bonds have been selling off, managing positive closes only on days when the stock market closed down.Not a Bad Forecast So Far.
Last December our forecast for 2011 was: “An early correction of some degree, a temporary recovery, then a more significant correction in the market’s unfavorable season to a low sometime in the October-November time-frame, followed by a substantial rally off the low to produce a positive year.”
So far it has worked out pretty much on the button and we have outperformed the market by both being in cash in our Seasonal Timing Strategy during the unfavorable season and so not giving back its gains of last winter, and being back in at the re-entry signal in October, and in our non-seasonal Market-Timing Strategy portfolio by playing the downside with ‘inverse’ etf’s during the summer correction (as well as playing both sides of the bond moves).
We don’t know how the rest of the year will play out but will trust our technical indicators.Economic reports continue to mostly improve.
As we have been noting over the last several weeks there have been some encouraging signs in recent U.S. economic reports, enough that worries about the economy sliding back into recession have subsided.
Yet, it’s far from an all clear on the economy.
We were particularly dismayed by Tuesday’s report that the Conference Board’s Consumer Confidence Index plunged in October to 39.8 from 46.4 in September. The consensus forecast was that it would remain at around 46. When the economy is growing consumer confidence usually runs at 90 or higher. The last time it was around 39.8 was in March 2009 during the 2007-2009 recession. Yet in spite of the plunging consumer confidence retail sales have been holding up well.
And yesterday’s report that Durable Goods Orders fell 0.8% in September versus a decline of 0.1% in August was also not encouraging, at least looking at the headline number. However, the decline was mostly due to a big drop of 7.5% in demand for commercial aircraft and autos. Durable Goods Orders ex-transportation actually rose 1.7% in September versus a decline of 0.4% in August. And orders for ‘core capital goods’ which leave out volatile defense and transportation, and thus are a better indication of trends in the private sector, were up 2.4%.
And it was also reported yesterday that new home sales increased by 5.7% in September, while the inventory of unsold new homes fell to a 6.2 month supply at current sales levels, the lowest level since April, 2010.
This morning came a more important report backing up the improvement in the individual reports. That was the report on 3rd quarter GDP growth, which showed that economic growth accelerated in the 3rd quarter, GDP coming in at an annualized rate of 2.5%, after only 1.3% in the 2nd quarter, moving nicely away from the recessionary trend.
Subscribers to Street Smart Report: There is an in-depth ‘U.S. Market Signals and Outlook report’ from yesterday, a hotline from 7 a.m. this morning, and an in-depth ‘Global Markets report’ from Tuesday, in the subscribers’ area of the Street Smart Report website. And there will be a new in-depth ‘Bonds, Gold, Dollar, Inflation’ report later today.
Yesterday in the U.S. Market.
A partial recovery from the previous day’s sharp sell-off, in spite of continuing concerns about whether the eurozone summit would come up with a meaningful agreement.
The Dow closed up 162 points, or 1.4%. The S&P 500 closed up 1.3%. The NYSE Composite closed up 1.4%. The Nasdaq closed up 0.5%. The Nasdaq 100 closed down 0.1%. The Russell 2000 closed up 1.9%. The DJ Transportation Avg. closed up 0.3%. The DJ Utilities Avg closed up 0.7%.
Gold closed up $12 an ounce at $1,723.
Oil closed up $1.14 a barrel at $91.34.
The U.S. dollar etf UUP closed down 0.1%.
The U.S. Treasury bond etf TLT plunged 1.8%.Yesterday in European Markets.
Markets in Europe gave up earlier gains to close mixed yesterday. London closed up 0.5%. The German DAX closed down 0.5%. France closed down 0.2%.Asian Markets Surged Up Last Night.
The DJ Asia-Pacific Index closed up 2.9%.
Among individual markets:
Australia closed up 2.4%. China closed up 0.3%. Hong Kong closed up 3.3%. India closed up 0.2%. Indonesia closed up 2.0%. Japan closed up 2.0%. Malaysia closed up 1.2%. New Zealand closed up 0.2%. South Korea closed up 1.5%. Singapore closed up 2.8%. Taiwan closed up 0.4%. Thailand closed up 2.3%.
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In the premium content area today: U.S. Market. Bonds.
Markets This Morning.
European markets are surging higher on relief over the results of the euro-zone debt crisis summit. The London FTSE is up 3.2%. Germany’s DAX is up 5.3%. France’s CAC is up 6.0%
Oil is up $2.20 a barrel at $92.40.
Gold is down $2 an ounce at $1,721 an ounce.This morning in the U.S. Market:
This week is a fairly heavy week for potential market-moving economic reports, including Consumer Confidence, Durable Goods Orders, New home Sales, and the first look at 3rd quarter GDP growth. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.
Monday’s report was that the Chicago Fed’s National Business Activity Index remained negative in September but improved to minus 0.22 from minus 0.59 in August. The 3-month moving average rose to –0.21 from –0.28 in August, the 2nd monthly improvement, putting it a bit further away from the –0.70 that has marked the beginning of all the recessions since 1970.
Tuesday it was reported that the Housing Price Index showed house prices rose 0.2% in August. But the Conference Board’s Consumer Confidence Index was a shocker, showing consumer confidence plunged to 39.8 in October from the already dismal 46.4 reading in September.
Yesterday it was that Durable Goods Orders fell 0.8% in September after a decline of 0.1% in August. But orders for ‘core capital goods’ which leave out volatile defense and transportation, and thus are a better indication of trends in the private sector, were up 2.4%. And it was also reported yesterday that new home sales increased by 5.7% in September, while the inventory of unsold new homes fell to a 6.2 month supply at current sales levels, the lowest level since April, 2010.
This morning’s reports are that new weekly unemployment claims fell by 2,000 last week. And more importantly the first reading on 3rd quarter GDP growth was that the economy grew 2.5% after only 1.3% in the 2nd quarter, moving away from the recessionary trend.
Still to come is the Pending Home Sales report, which will be released at 10 a.m.
Pre-open indicators are very positive.Our Pre-Open Indicators:
Our pre-open indicators are now pointing to the Dow being up 250 points or so in the early going.
To read my weekend newspaper column ‘If Only We Could Ignore Europe!’ click here!
Subscribers to Street Smart Report: There is an in-depth ‘U.S. Market report’ from yesterday, a hotline from 7 a.m. this morning, and an in-depth ‘Global Markets report’ from Tuesday in the subscribers’ area of the Street Smart Report website. And there will be a new in-depth ‘Bonds, Gold, Dollar, Inflation’ report later today.
Non-subscribers: How are you doing so far in 2011? We can help, and at very reasonable cost! Street Smart Report Online provides an 8-page newsletter every 3 weeks, an in-depth 6 page interim update every Wednesday on our intermediate-term signals and recommended holdings, an in-depth 4-page ‘Gold, Bonds, Dollar’ update every 2 weeks, and special reports and hotline updates as needed. Sectors, stocks, bonds, gold, short-sales, long-side and inverse etf’s and mutual funds. Highly regarded and in its 23nd year. As a bonus for a one-year subscription you will also receive my latest book Beat the Market the Easy Way- Proven Seasonal Strategies That Double the Market’s Performance. Click here for subscription information.
I’ll be back Saturday morning with the regular Saturday morning post, as usual later than the week-day posts, probably around 11 a.m. (This blog appears every Tuesday, Thursday, and Saturday morning!).
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