WHO DID ALL THAT BUYING YESTERDAY?

Despite the very weak Chicago PMI (which is highly correlated to the ISM) there was an enormous amount of buying yesterday in front of today’s data.  We mentioned on numerous occasions that the 53.5 estimate was likely far too optimistic.   This could be a sign of just how complacent investors have become.  Yesterday’s blow-off at 1PM can only be described as greed gone wild.

Not surprisingly, the data disappointed this morning.   Jobless claims shocked to the upside at 551K – a truly astounding figure for an economy that is priced for 20% earnings growth and 4% GDP.  Continuing claims did fall to 6.09MM in a sign that a bit of hiring has been done.  All in all, the last few weeks of claims likely point to very marginal improvements in tomorrow non-farm payrolls figure.  The headline estimate of -170K is likely to fairly accurate.

As we mentioned above, the ISM manufacturing data came in weaker than expected at 52.6.   Although it missed analysts estimates it is still a fairly positive report:

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The manufacturing sector grew for the second consecutive month in September. While the rate of growth moderated slightly when compared to August, the recovery broadened as the number of industries reporting growth increased from 11 to 13. Both new orders and production are growing, but at a slower rate when compared to August. It appears the fundamentals for continuing recovery are still at work as inventories and sales are gaining balance. This month, we asked a special question with regard to the American Recovery and Reinvestment Act. Twelve of the 18 manufacturing industries expect to derive some benefit from the program, and 12 manufacturing industries responded that they expect their companies to see some benefit.”

What respondents are saying:

• “Purchasing remains a challenge as suppliers now seem to be trying to raise pricing at any sign of life in the economy.” (Computer & Electronic Products)
• “Business is picking up — lots of opportunities.” (Primary Metals)
• “Agricultural commodities continue to weaken, with the exception of the domestic and world sugar markets.” (Food, Beverage & Tobacco Products)
• “Automotive demand continues to be strong even after ‘cash for clunkers.'” (Fabricated Metal Products)
• “Business remains slow, with no sign of improvement again this month.” (Nonmetallic Mineral Products)

All in all the data was quite disappointing.  “Better than expected” certainly doesn’t apply for the first time in many weeks.  Are we seeing a change in trend in the positive reports?   Yesterday’s mid-day ramp in stocks might just be a sign that investors are growing a bit too optimistic about the strength of the recovery.  We’re certainly beginning to see it in the analysts estimates….Perhaps these “buy the dip” rally chasers will learn the lesson that has evaded them for weeks as they sit on healthy 2% losses in less than 24 hours….