Last Monday Spain joined about half of Europe officially in recession. The stock markets did little on moderate volume. The VXO moved to just above 16. Two Federal Reserve speakers reinforced the idea that further easing (even the “Operation Twist” variety) under current conditions is not in the cards.
Tuesday the Federal Reserve PR blitzkrieg continued with the heads of five of the member banks in the limelight. This dovetails with the remark reported last week from Bernanke about the need to inform voters. Will the first-of-the-month-up phenomenon come into play today? (Yes.) Much of the rest of the world celebrates May Day as a holiday, so from that perspective, things were pretty quiet.
When the manufacturing data was better than expected the market indices jumped higher as the VXO (fear index) dropped to the low 15′s. “Risk on” and high hopes reigned as spring-time optimism broke through the winter gloom. The euphoria subsided a bit toward the close, but the day was still strongly positive with the Dow close the highest since December 2007. The question must be, are things better for these companies than they were before the 2008 crash? Certainly the 10-Year U.S. Treasury Bond rate is much lower than then—which in general lifts stocks. Beyond that fact and of course legalized lying on balance sheets, I’m hard-pressed to find any justification for it.
Wednesday began with a dose of reality as the river of negative news continued to flow from Europe. By the end of the day though the markets were nearly flat on low volume. Two Fed presidents spoke. The VXO rose to above 16. Spanish bonds moved up again. Volume was light.
Thursday started with hopes that perhaps, just perhaps Draghi would lower ECB rates—no juice there. New monthly unemployment application numbers improved slightly as they again revised the previous numbers higher. Retail sales numbers disappointed dragging stock indices down. Commodities and zombie banks took a hit along with gold stocks on light volume.
Friday, stocks opened lower as the labor report showed significantly fewer jobs created than even the latest deflated published expectations. But do not despair. All is just rosy. The bogus unemployment rate dropped another tenth of one percent! Don’t pay any attention to that massive monthly decline in the “labor participation rate” which now sits at a 30-year low.
It’s telling that the jobs gain is coming in at less than one fourth the size of number of people leaving the workforce . Even more disturbing is that full-time jobs are being replaced with part-time jobs at an alarming rate–further disguising the true scope of unemployment in the United States.
On a brighter note, economic reports for major European countries continued their awful trend. This hit stock markets in Europe even before the ugly U.S. labor news. Against reason, Spanish and Italian bond rates continued their slow drift lower. Commodities suffered more, but gold miners bucked the trend.
In summary, the first week of May turned negative for stocks with the S&P 500 Index down over 2% and again sinking below its 50-day moving average. Bloated IBM finally moved a bit lower along with zombie banks taking the Dow back close to 13000 while Apple dragged the NASDAQ well below 3000 again. Investor sentiment (measured Wednesday) moved more positive to the neutral area, but by Friday the VXO (fear index) had ramped up to over 19.
The European elections Sunday point to more uncertainty and reduced probability that the existing euro financial union can remain intact—threatening the survival of the euro itself. Even Adam Hamilton is finally starting to speak of the stock market topping and an end to this current cyclical bull run. The tide is changing.
Filed under: Investment
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