Wholly Divergence Batman!

Wholly divergence Batman! The Dow and S&P 500 are rising deep into the trading day, as the NASDAQ and broader market shows signs of weakness. It's all about capital flows my friends, and the money is going where growth is, and that's the large multinationals within the Dow and S&P 500. Economic data was mixed this morning, as we had positive employment news and manufacturing data staving off poor leading indicators and surging energy prices. Also, Ben Bernanke had some reassuring things to say about the mortgage market. You know where I stand. I think a stealth bear is creeping and he'll get to those multinationals eventually. I'm officially out of the closet today, though I don't think I hid my bearishness well anyway. Please find significantly more detail below.

Asia:
Hang Seng Index +0.27%; Shanghai/Shenzhen CSI 300 +2.12%; NIKKEI 225 -0.17%; S&P/ASX 200 +1.13%; Taiwan TAIEX +0.62%; BSE SENSEX 30 +1.22%; KRX 100 +0.75%; Ho Chi Minh +1.81%

U.K., Europe & Middle East:
DJ STOXX 50 Index +0.2%; FTSE 100 +0.3%; CAC 40 +0.15%; DAX +0.24%; Russian RTS Index -0.72%; Greek ASE General -3.59%; Tel Aviv 25 -0.89%; Tadawul All Share +0.18%; DFM General -0.9%

Our value-added take on today's key news:

• *** Initial weekly jobless claims were reported lower for the fifth week in a row, to 293,000 for the week ended May12. We continue to expect nonfarm payrolls to show the first signs of employment softening. Our logic here is that firms simply stop hiring before they start firing. The current state of employment is strong and indisputably so. However, if tightening credit accessibility and costly gasoline and food prices start to eat into consumer spending, we anticipate corporate profits will be further pressured in our services geared economy. The natural course from there is for workforce reduction on a broader scale. At that point the Fed will have to move to cut rates, but a further reduced consumer propensity to spend, due to higher unemployment will make the road back a steeper one to climb. Short investor Doug Kass stated last week that true unemployment may already be higher than the reported figures, after logical add backs are made into the number. Included in his estimate were people unemployed who are no longer tracked by the Labor Department.
• *** April's Leading Economic Indicators Index declined 0.5%. Expectations were for the reading to be unchanged at the beginning of the week, so the decline caught some permabulls by surprise. And yes, I think it portends trouble ahead. Now, I know those of you who have made a bundle in Dow and S&P 500 leaders are laughing in the face of this data, and I don't blame you. Still, eventually I expect a softening economy on consumer weakness to even seep its way into your market leading shares. I keep saying it, the American consumer is more important to American multinationals than foreign demand. Your safer than many, but not safe. I'm usually late for appointments (Greek time), but early for economic predictions, so beware. Seven of the ten factors that feed into the leading indicators figure had negative impact. That's a strong majority and not all housing. Stock market performance was one of the three positive factors, and sure seems to be based on a flawed driver to me. Earnings estimates were grossly understated by analysts expecting a fall off of a cliff type quarter. Analysts play this game you see. They don't want to be the catalyst to drive the stocks they are recommending for purchase lower; it's a good thing to beat estimates, and so they purposely set the bar low. Management typically does the same, and in the case of this quarter, the analysts were scared silly that recession might kill their names. So, when the majority of companies beat estimates, they beat by a lot, in aggregate anyway. It made it seem like things weren't so bad didn't it.? On top of that, a clear driver presented itself. The global economy!!! We are saved, you proclaimed! I'm sorry folks, but please don't shoot the messenger. The American economy is slipping.
• *** The Philly Fed Survey showed expansion, and bolstered the view expressed in the Empire State reading a few days earlier. However, remember the Greek's point. The port of New York is key for foreign sales, and product from the Philly and New York area must benefit significantly from exports. Okay, so the Northeast is also a huge market. I hear you. Still, this data just ties into our new divergence theory. I think the Dow & S&P are heading down the wrong road, and will eventually have to do some backtracking to catch up to where reality tells us the economy is going, and where stocks are heading, with the Fed's hands partially tied by inflation.
• *** If there was any doubt, it's official. I've become a scary bear, as frightening as the grizzlies I've been having recurring nightmares about since childhood. Oil prices are surging today, and natural gas is higher as well. That's not good folks. It means more pressure on gasoline prices. It's actually gasoline refinery issues driving oil again today. The summer season is just about upon us and gasoline storage is not up to par, and capacity utilization is not there yet either. God forbid we get an early Gulf hurricane. Remember $4 gas? Now that's a frightening thought. Still, I expect oil prices to soften as economic deceleration presents itself.

(disclosure)