Stocks were off to a great start this week before losing their swagger and falling into the red ahead of the weekend.
Monday, Tuesday and Wednesday saw the averages climb to a solid 4-day winning streak. The upward momentum came on the heels of the Dow breaking a 6-week losing streak last week. It also had something to do with a good report from FedEx, giving investors cause for optimism.
But getting into mid week, the action started getting dicey. The Fed was scheduled for a 2-day meeting and rate announcement on Wednesday afternoon. Stocks traded strong into the number as investors were optimistic the Central Bank would throw the market a bone.
But when the results came in a bit soft stocks sold sharply into the close and set a bearish tone for the rest of the week. Friday’s 1.17% decline pushed the averages into the red for the week, the seventh in the last eight.
This has been the tone in the market for the last month, a simple dog fight between the bears and bulls. But what makes it even more interesting is that both sides are serious conviction players. The biggest bears are pretty darn bearish, calling for economic meltdown as the developed economies collapse on a pile of credit. But the bulls are pretty darn bullish too. I read an article last week where one analyst was calling for Dow 20K. I own stocks, so believe me, I’d be pumped if it happened, but it’s also a huge tail.
So for the time being you have two epic forces going head to head, bobbing and weaving with every new piece of information that hits the wire.
Right now that is Greece and the EU. This story has gotten so granular that the news agencies basically have real-time feeds letting us know if the Prime Minister gets ham or pastrami at lunch. But minus all the superficial details, the market is desperately searching for clarity on this issue. Greece is definitely in big trouble, but not far behind is Spain and Portugal. And the market knows this. So until the EU figures out how to build a super-stretch safety net big enough to catch an elephant, the market remains suspicious of its ability to execute.
Beyond the EU you have the Fed ending QE2 and the debt ceiling battle. Neither of these things is making investors feel confident sending new money into the market.
Looking forward, we’ve got an important batch of consumer data on tap this week. Higher gasoline prices have been killing people, but keep in mind; this is America, where iPhones and new shoes take priority over health insurance. So be very careful betting against the American consumer.
A strong read could give the market a much needed shot of adrenaline and lift the averages into the green in the last week of Q2.
Updates:
The big winner of the week was EZCORP, Inc. (EZPW), adding 5.7% after shares bucked the weak market on Friday and traded within $1 of the 52-week high at $33.31. This pawn shop and payday lending company is seeing big demand right now as unemployment remains high and consumers struggle with short-term liquidity.
We also saw some nice movement from our economic bellwether stocks. TAL International Group (TAL), a shipping containers company, added 4.7%, while Kansas City Southern (KSU), our mid-cap rail shipper gained 3.85%. Some of the companies considered to be barometers of general economic growth took a beating over the last few weeks as analysts and investors modeled slower economic and GDP growth. But now, a few weeks down the road, the Street is recognizing that slower growth does in fact still mean growth, and with valuations looking compelling, maybe things got a bit oversold. So some of the capital inflows this week were directed toward lower-beta value plays in transports. And that’s exactly what we saw show up in TAL and KSU.
Moving into some of our technology stocks, Check Point Software Technologies (CHKP) traded like an all-star, clocking in with an outsized 4.65% gain. The NASDAQ was the strongest index of the week, beating the Dow and S&P’s loss with a 1.4% gain on some bullish news from Cisco and Apple.
And finally, we have VeriFone Systems, Inc. (PAY), with the maker of hardware and software for electronic financial transaction adding 3.23% on the week in spite of taking a 2.94% hit on Friday. The long-term outlook for VeriFone is great as emerging markets embrace a more sophisticated financial infrastructure. VeriFone is also frequently mentioned as a buyout candidate as a strong mid capper with leading market share and technology. So even though we have seen some volatility from VeriFone, this is still a good place to look for an outsized gain.
That’s all for this week. In the mean time here is an interesting article discussing how Russia’s default ten years ago helped the country recover from a financial crisis and why Greece should just bite the bullet and do the same. Enjoy.
Russia Holds Key Lessons for Greece
Your Investment Partner,
Mike
