Stocks are trying to find signs of life. Frankly, a gap-up like we are seeing in futures is not offering comfort due to our persistent fear of the “gap and crap” trade pattern which we warned about last week after the payrolls data was better than expected. But after a day like yesterday, maybe the panic is starting to come to an end. While there are many things working against stocks globally, we have come up with several issues happening right now that may act to support stocks in the hours or days ahead.
The FOMC meeting begins and the FOMC could take several more ‘easing’ actions: the ‘extended period’ language can be extended even further, it can try to peg longer-term yields, it can also go to zero rates on reserves to increase risk asset buying, and it could even resort to using the QE2 rollover funds to buy riskier assets. QE3 won’t be anything like a QE2, but these are some things.
The bond spreads in Spain and Italy have continued to contract and today looks to be a third day of yield contraction there.
Blackrock, Inc. (NYSE: BLK) is reportedly, according to Reuters, going to use bond and gold profits to buy beaten down stocks. After all, the Dow Jones Industrial Average and the DIAMONDS (NYSE: DIA) fell 5.5% yesterday with a 634 point DJIA drop.
Oil has reached ‘easing’ levels. WTI Crude has broken under $80/barrel and Brent Sea crude has traded under the $100/barrel mark. This acts as ‘stimulus’ on its own.
The S&P Volatility Index is reaching potential cycle-peak extremes at 48.0, a level seen at 48.2 in May 2010 and 51.95 hit in March 2009.
S&P may have cut the AAA rating on the United States, but yesterday came word that S&P was reaffirming its highest ratings on the top six non-financial issuer ratings in America.
Lastly, balance sheets and valuations are supportive of “value” even if buyers have gone on strike. We would advise against holding a hat out for value buyers because they keep getting burned. Still, many stocks are trading nearer and nearer to ten-times earnings, most big corporate books are solid, and most companies can support higher and higher dividends.
Another day, another dollar. Hopefully not another day and another dollar less.
JON C. OGG