morning review - 082510

8/9/2019 Morning Review - 082510

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]

Beth Reed: 212 448 6096 or [email protected]

So what do you do to help avoid jams? Keep your distance from the car or truck in front of you. That gives you time to slow down deliberately, rather than

mashing the brakes and causing the cars behind you to stop short and create that “pressure wave/jamiton.” An impassioned appeal from another amateur follows:http://www.skaggmo.com/newsletter3a.htm.

We’ll finish off this note with a few observations about what this stocks-are-like-traffic-jams comparison means to investors and traders. The most importantpoint is that jams – or market drops – seem to happen when everyone wants to go in the same direction (high correlations between asset classes). Jams occur once thatstage is set because a relatively small number of participants do something unexpected. They can, in short, have a disproportionately large effect on the entire system.And – worse still - if a lot of people slow down at once, the system grinds to a halt. That feels a lot like what we have right now. Mutual fund outflows from domesticstock funds are effectively the retail investor putting their foot on the brakes – something they have been doing for 15 weeks straight. Combine that with plenty ofdistracting scenery in the form of lousy economic data and the jam gets worse.

One thing all traffic jam experts seem to agree on: when the chain reaction that starts a jam really kicks in, only time will unwind it. And that seems like themost accurate comparison point to stocks.



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U.S. EQUITIES

DELL declined 3.0% on media speculation the computer maker is sweetening its bid for PAR (+3.6%) after HPQ (-1.7%) bested its earlier offer. FMC lost2.0% as HSBC downgraded it to “Neutral” from “Overweight,” while homebuilders LEN (+1.4%) and KBH (+2.5%) advanced after Citigroup highlighted thathousing data will no longer be skewed by the homebuyer tax credits. Shares of solar companies (including SPWRA: -4.1% and STP: -5.6%) were down inresponse to the extremely weak existing home sales data. Despite reporting weaker-than-expected revenue and warning that business condition wouldremain under pressure, BKC added 1.7%.

Important Conferences/Corporate Meetings Today:Barrington Research Healthcare Conference – Chicago, IL

EnerCom Incorporated Oil & Gas Conference – Denver, COMorgan Stanley Semi and Semi Cap Equipment Investor Day

Important Earnings Today (with Estimates) From…

Source: Thomson ONE

Three Day (High – 1080.25; Low – 1044.00): Prior Day SPX (High – 1063.20; Low – 1046.68; Close – 1051.88):

S&P Futures

One Day (High –1065.75; Low – 1044.00):

AEO: $0.12 GES: $0.69 JAS: $0.02Source: Bloomberg



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FIXED INCOME

Source: Bloomberg

Today’s Important Economic Indicators/Events (with Consensus): Durable Goods Orders (8:30am EST): 2.5% New Home Sales (10:00am EST): 340K SAAR FHFA House Price Index

Source: Bloomberg

Treasuries rallied Tuesday, sending 2-year note yields to another record low and those on the 10-year note under 2.5 percent for the first time since March2009, after a report showed existing single-family home sales tumbled to the lowest since May 1995. The Treasury’s $37 billion offering of 2-year notesdrew a record low yield of 0.498 percent. Coverage was 3.12 times, compared with an average of 3.19 over the past 10 auctions. Foreign interest, asmeasured by indirect bidders, was lighter than the recent average by about 10 percentage points.

morning review - 082510

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