Consumer Fades, IMF Slashes, Shorts Peak
Kevin Cook here for Steve the rest of this week as he takes some R&R...
After Friday's impressive rally off of support near S&P 1,330, the market took a breather Monday and traded in a very narrow range around 1,350-55. For those who think lots of bad news is priced-in and that this market can climb a wall of worry, more ammo was provided for their argument.
First came the IMF's World Economic Outlook quarterly report which lowers their forecasts for growth among advanced, developing, and emerging economies to an average of 3.5% in 2012. They see the global slow-down as getting a bit worse in the second half but remain optimistic about a resurgence in 2013 to 3.9%.
Next, came a little report known as Retail Sales which marked the third consecutive month of declines. If you look at a graph of the yearly data on Bloomberg's economic calendar, you can see that June of 2011 was the peak of this expansion at over 9% and we've done nothing but fall since then to approach summer 2010 levels below 4%. In response, Goldman Sachs economists lowered their 2Q GDP estimate 2/10ths to 1.1%.
Finally, in a possible sign of more market upside to come, short interest on the NYSE hit 5.35%, eclipsing last September's peak of 5.28%, a level that preceded a five-month rally which tore the hides off of bears. Nothing fuels a good rally like massive short-covering.
So other than a pause and refresh, what are markets waiting for to climb that wall of worry? Most likely, two days of "Bernanke, Live on the Hill." Ben starts today off before the Senate and Wednesday in front of the House in his semi-annual monetary policy testimonies. Those looking for clues about QE Next, or his ideas on the fiscal cliff, will be on the edge of their stimulus-addicted seats.
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