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Friday, February 15, 2013

The backdrop for today’s market action remains favorable, with the New York Fed’s Empire State manufacturing index coming in better than expected. The regional manufacturing index reversed seven months of negative readings to reach its best level since May 2012. Other data on tap for release a little later includes the University of Michigan’s preliminary Consumer Sentiment survey for February and the January Industrial Production data. The sentiment data is expected to have improved from the prior month’s level, with momentum in the stock market and gains in jobs expected to offset the income drag from higher payroll taxes resulting from the Fiscal Cliff deal.   

But stocks may not do much today ahead of the President’s Day weekend, particularly after reaching milestone levels the day before. The market’s gains on Thursday were notable as they came in the face of distressing news out of Europe and Japan. This has been the norm lately, with investors using every pullback as a buying opportunity. With money flows indicating that mom and pop investors are flocking back to the market, it appears that nobody wants to miss out on this rally. Retail investors’ sense of timing doesn’t inspire much confidence, but let’s hope that they don’t get disappointed again.

Over the weekend, we will get the official statement from the Group of 20 (G-20) finance officials meeting in Moscow. The meeting is pondering ways to avoid ‘begger thy neighbor’ currency actions, an issue that has take center stage after the activist policies of Japan’s new government has taken effect. The value of Japan’s currency relative to that country’s trading partners has been sharply coming down in recent days, while that of Euro has been going up. With every major developed country pursuing unconventional monetary policies at present, the G-20 meeting is not expected to come out with anything tangible, though there wouldn’t be any shortage of nice-sounding words and commitments in the final statement.

In corporate news, we got better looking results from Campbell Soup (CPB - Analyst Report) and J.M. Smucker (SJM - Analyst Report), while Kraft Foods (KRFT - Analyst Report) came up short. The drama surrounding Herbalife (HLF - Snapshot Report) took another interesting turn yesterday, after Carl Icahn announced that he has accumulated a 13% stake in the company, opposite the well publicized short position in the company by rival hedge fund manager Bill Ackman. Given Icahn’s feelings for Ackman, some may wonder whether his Herbalife stake is his way of getting back Ackman. We will know more in the coming days, but this clash of the titans is no doubt very interesting.

Sheraz Mian
Director of Research

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