Kevin Cook here starting off the week for Steve...
Irrational exuberance over EU summit actions and much hoped-for central bank stimulus quickly lost its head of steam before July 4th barbecues even cooled off. And even the "smart money" got burned on the jobs trade when Goldman Sachs upped their forecast for non-farm payrolls to 125k based on the strong ADP report the day before.
Was the market down 1% because of another month of sub-100k job growth? On June 1, I said about 3 of those ought to get you QE3 by the end of August. But, while market punters debated whether a "good" or "bad" jobs number should help or hurt stocks because of the implied Bernanke Put being in play or not, the real reasons that stocks sank have to do with economic realities that more QE may not be able to help.
The reality of how long it could actually take to fix the eurozone is sinking in – especially since their sense of urgency is not quite the same as ours. Combine that with the reality of the US economy slowing to near stall speed, and you have the makings of stocks staying cheap (13X times forward EPS of $103) instead of surging to new highs and "fair" valuation (15X = S&P 1,550).
Given these realities, the market still isn't running scared. After the June lows, the indexes have built respectable bases and taken out resistance levels like S&P 1,360. A trip down to test 1,335-40 and the 50-day moving average will probably result in a bounce and another run for stronger resistance at 1,390. But if 1,330 breaks, the bears will have the leverage again.
And just when we needed a catalyst to confirm or deny our economic malaise, we launch one this week. Welcome to earnings season. The July fireworks have only just begun.
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Today's Top Stories: Monday- July 09, 2012
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