ISM SERVICES & NFP – MORE BAD NEWS
The market remains resilient in the face of bad news. The S&P 500 is down just 0.5% on the non-farm payrolls and ISM services reports. The NFP was essentially in-line with estimates with 663K job losses last month and 8.5% unemployment. February estimates were revised higher by 80K. The ISM came in at 40.8 which was worse than the 42 analyst’s expected. The devils are in the details of course.
6 of the 10 relevant indices are contracting more rapidly with 9 of the 10 still in full blown contraction. Respondents said:
- “We are definitely feeling the recession in terms of business activity on all fronts.” (Transportation & Warehousing)
- “The general state of the building industry is still very difficult with demand still low. We are starting to see some inflation in commodities and expect to have limited sales for this month.” (Construction)
- “Business is significantly down. Very few new projects. Many layoffs.” (Finance & Insurance)
- “Healthcare is also seeing a slowdown in volume.” (Health Care & Social Assistance)
- “Business is still flat and appears like it will remain that way through the second quarter of this year, causing cutbacks on purchases and increased requests for cost savings.” (Professional, Scientific & Technical Services)
- “Things are still slow due to the current economic conditions. Areas that are traditionally active this time of year are experiencing moderate activity levels.” (Wholesale Trade)
The chart below is a fantastic sign of the times and what I believe is a false dawn in the economy. October was such a horrible month – the economy literally stalled for weeks – that it is nearly impossible for sequential growth to not improve. The bottom red line represents this improvement in sequential growth, however, the top red line shows that the overall economic deterioration on a longer-term basis is still very real. To refer to a past analogy -what we’re essentially seeing is a boxer who gets KO’d in his first match and then throws a party when he gets TKO’d in his second career match. This is not real improvement. It’s just not the utter debacle it was a few months ago. That is not improvement. Beware the bottom callers. They are out in force now.
This feels like the last great rally we are going to see before the world implodes. Thats how it feels like. Honestly, its obvious that there is a lot of cash out on the sidelines waiting to get back in and the longer this market rises, the more anxious these bystanders want a piece of the pie and jump in. This rally can go on for months! Not to mention the shorts who are down big right now and are looking to cover as the markets continue to rise for no apparent reason other than hope. There is no need for the reinstatement of the uptick rule now because the markets look to have 'stabilized' though going up 2% daily really isn't healthy in general for the long run. Its setting up for a catastrophe but looks like this may not happen till later this year or early 2010. But that time, all the people in the know would have been out of the market as the retail investors will become the bagholders.
I don't know if implosion is in the cards as far as my thinking, but I do think we're staring at a prolonged and sluggish recovery….
Hey TPC, whats your take on the dow closing over 8k and SP over 840 today? And what ever happened to SRS today? took a beating. Is the government going to intervene with the CRE market now? The next few trillions to be put into the next bailout?
I just wrote my weekly review for next week. Should post Sunday. I think this market can run until Wednesday. Thats the uptick ruling day. Then the government is out of bullets and we'll see just how strong this market is. My guess is we roll over hard after that.
No one will want to be short in front of that meeting. I would rather be buyer until wednesday. We might see the market melt up some more on short covering…..After that. Look out below. The government will be out of the picture and we'll be sitting on seriously oversold levels.