Stocks End Week Lower As Global Economy Slows

Friday, May 4, 2012
Stock Market Commentary:

Stocks and a slew of other “risk assets” fell in the first week of May after the latest round of economic and earnings data failed to impress investors and half of Europe has fallen back into a double dip recession. As earnings and economic data continues to be released in droves, it is paramount that we not only pay attention to the actual numbers but how the stocks (and major averages) react to the numbers. This allows us to see how the market participants are “voting” and helps us filter out the noise and focus on what matters most: price action. So far the action is not ideal. We find it a little worrisome to see all the major averages fall below their respective 50 DMA lines again.

Monday-Wednesday’s Action; Stocks Steady Ahead of April’s Jobs Report:

Stocks and a slew of risk assets fell on Monday after the latest data from across the globe largely came in weaker-than-expected. From a pure fundamental point of view, nearly half of Europe is already in a recession. According to Bloomberg, the following European countries are already in a double dip recession: UK, Ireland, Denmark, Holland, Belgium, Czech Republic, Slovenia, Greece, Italy, Spain, and Portugal. However, the fact that the euro is holding up rather well in-spite of this disconcerting news, is a net positive in the near term. The underlying notion that is helping markets rally, or at least not fall, is that the recent spate of “bad” economic data will force global central banks’ to step up and engage in another round of QE. Spain was the latest European domino to fall into a double dip recession which bodes poorly for the global economy. The U.S. economic data was not ideal. The Chicago ISM index, which measures business activity in the Midwest fell to 56.2 in Apiril from 62.2 in March. It missed the Street’s estimate for 61 but managed to stay above the boom/bust level of 50. Meanwhile, the Commerce Department said household income rose +0.4% in March which was the largest gain in three months.

Stocks rallied on Tuesday after economic data from the U.S. and China was relatively encouraging. The Institute for Supply Management’s index of national manufacturing activity rose to a 10-month high in April. Meanwhile, the Commerce Department said that orders for transportation equipment slid by -12.6% in March on weak orders for civilian aircraft.  A separate report from China showed its factory index jumped to a a 13-month high in April which bodes well for the global recovery. Most European markets and several Asian markets were closed on Tuesday in observance of May day.

Market Outlook- In A Correction

From our point of view, the market is back in a correction now that the Dow Jones Industrial Average, S&P 500, Nasdaq composite, Nasdaq 100, and the Russell 2000 are back below their respective 50 DMA lines. The next level of support are April’s lows. If those levels are breached, the 200 DMA line becomes the next level of support. As always, keep your losses small and never argue with the tape. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!