I hope you all had a fantastic weekend. Once again the weather was great and I know I took advantage of it. It helped put the poor week of market action in the back of my memory. Speaking of which, last week was by far the worst of the year across the globe. Equity markets around the world fell between 4% to 8% in an ugly but orderly fall. Here in the US, the DJIA dropped 3.5% while the S&P 500 fell 4.3% and the NASDAQ fell 5.28%.
One of Yogi Berra's more famous Yogi-isms was the quote "It's Déjà vu all over again." He said it supposedly to describe watching Maris and Mantle repeatedly hit HR's during the season when Maris broke the HR mark and Mantle was right on his tail. (Yes, that's the pun, Déjà vu is all over again.) Regarding this market and Europe, doesn't it seem like Déjà vu - all over again? I mean we just went through this Greek situation last summer and into the fall and here it is again. Basically the same issues -- Contagion fears are back as investors ponder whether Greece will have to leave the Euro and will there be cataclysmic repercussions. Greeks now won't accept the austerity plan they were forced to accept and Europeans (ie, Germany) won't give them anymore money unless they take their prescribed medicine. The problem for the Greeks and they don't seem to get it - THEY ARE BROKE! Listen Greece - you have a huge budget deficit, no way of raising money by yourself and you have no money to pay your civil servants or your bondholders. You can't leave the Euro to bring back a Drachma nobody will want. That is why I believe the odds favor them staying in the Euro and eventually accepting a new plan.
Since Europe reclaimed the headlines, the S&P 500 is down about 8% from its April peak and back to levels seen in January. Since the S&P closed at 1405 on May 1st, it is down 11 of 13 sessions including the last 6. Also, it has been an orderly sell-off, not a massive sell-off followed by volatility. However, during this same time, the VIX index (market fear gauge) is up a stunning 51% to 25.10 since May 1st. Looking back 1 year ago, the VIX moved from a similar level to as high as 47 while the market was in free-fall. So, we haven't reached panic-selling yet. As a grim reminder, last July and August the S&P fell 10 of 11 sessions going from 1350 to 1119 (-17%) while the VIX made its move. So, the potential bad news is that if it is indeed Déjà vu, then it can get a lot uglier. However, the market looks ripe for a short-term upside move as it seems a bit oversold near-term. Beyond that we may be subject to swings based on Euro headlines again for a while. I would be remiss if I didn't mention the Facebook Flop. The largest IPO ever turned into a real fiasco as Bankers got greedy and walked the IPO price up too high to $38. This even further enriched the billionaires that were created while burning investors. Today the stock is already down to $35 and this is certainly egg on the face of underwriters.
The Consumer Price Index (CPI) was unchanged in April exactly as the consensus expected. The CPI is up 2.3% versus a year ago.
The Empire State index, a measure of manufacturing in New York, increased to +17.1 in May from +6.6 in April, easily beating the consensus expected gain to +9.0.
Retail sales increased 0.1% in April, matching consensus expectations, but were unchanged including slight downward revisions for February/March.
Housing starts rose 2.6% in April to 717,000 units at an annual rate, well above the 685,000 rate the consensus expected. Starts are up 29.9% versus a year ago.
New building permits fell 7.0% in April to a 715,000 annual rate, coming in below the consensus expected pace of 730,000
10-yr UST yield - Fell to 1.70% from 1.79%. Traded below 1.7% as investors flock to safety
30-yr UST - Fell to 2.80% from 3.017. Below 3% for 30-years. Where is the reward??
ML High Yield 100 - Rose to 7.00% from 6.55%. Investors were really in "risk-off" mode.
30-yr Fixed Mortgage - Fell to 3.89% from 3.94%. If you haven't refi'd, do it!
Gold/oz - Rose to $1591/oz from $1583. Gold finally bounced off its lows.
Crude Oil - Fell to 91.48 from $96.13 a barrel.
$ per Euro - 1.278 from 1.2917. Dollar strength continued with Europe and Greece woes.
Yen per $ - 79.01 from 79.88. Yen has been strong. Will BOJ intervene?
Stocks fell broadly around the Globe as mentioned earlier. It was a "risk-off" week as almost all risk asset classes fell. The only major asset classes to rise were the US Dollar, Gold and Government Bonds.
European stocks fell hard with the Euro Stoxx 600 dropping 5.2%. Spain fell 6.13%, Ital -7.09% and Sweden -7.05%. Germany lost 4.69%.
Pac stocks fell sharply with the DJ./Asia index down 5.0%. Japan fell 3.82% while Hong Kong shed 5.07% and is down 10% in 2 weeks
NOTE: The above is a summary of the Forza Weekly Newsletter. Sign-up to get the full version for free at www.forzainvestment.com
DISCLAIMER: The information contained in this blog is not intended to constitute financial advice, and is not a recommendation or solicitation to buy, sell or hold any security. This blog is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice.