Big names such as AT&T, Amgen, and Proctor and Gamble all are sliding today on weaker than expected earnings and guidance. Also, the durable goods number fell in March, the largest drop in seven months, thus seeming to stop a continued rally in the stock market, before the highly watched GDP number to be released this Friday.
Equities: The JUN13 E-mini SP 500 futures are very quiet today, likely in anticipation of this Friday’s GDP release. We still believe this market is in a longer term bullish environment. However, such big companies as Apple and AT&T having disappointing earnings might quell a lot of potential new buying interest. With that said, the GDP number on Friday will be interesting because if it comes out much higher than expected, investors will have to choose how the market will respond: Stocks up because of strong growth, or stocks down because strong numbers might cause the Fed to be even more clear on its intentions to wind down the quantitative easing program at the end of this year. We believe stocks will rally on a strong GDP number.
Bonds: The JUN13 US 30-yr bond futures are very quiet today as well. We believe this market also is in a low volatility environment and is waiting for Friday’s GDP number. We believe the bond market, even though under a non-QE inspired environment, should really be going down a lot with the stock market at all-time highs. However, the reality is that QE is still alive and well, and the Fed has no real reason, especially with current inflation readings not being out of line, to end QE “early.” Also, considering US bond yields are still higher than many of their large sovereign counterparts, there still is some likely attraction to invest in U.S. bonds by large institutions and sovereign entities. However, as emerging market bonds gain respect, we could see this trend change. Overall, we believe that at this point the next benchmark for the bond market is whether or not the S&P 500 can make a new high. We believe this will be an interesting signal to the bond market. If the S&P 500 can make a new high, we believe this will cause the US bond yields to start moving higher.
Currencies: We believe two of the major non-U.S. currencies (euro and British pound) are in neutral to bearish environments. The U.K. GDP number will be released at 4:30am EST Thursday morning, and this potentially could have a big impact on the pound. If the GDP number comes out below consensus estimate, we could see a large drop in the pound as the market starts to anticipate more stimulus. If the GDP surprises to the upside at .3 or above, we could see a relief rally in the pound.
Commodities: Gold and silver still are stuck in their post-sell off range. Gold is up around 1% today, and silver is up .22%. We believe these markets are still vulnerable to the downside. We’ll focus on copper today. Copper is typically called Dr. Copper because of its historic accuracy in indicating the general strength of the economy. Copper has technically entered a bear market this year, but today is having a nice $.065 rally, as Goldman Sachs put out a short term bullish call helping to incite profit-taking. We believe copper’s key resistance level is $3.30, and if it gets below $3, we think buyers enter to bring the market up.