Moronic Paradox Drives Stock Rally

Beware bad reasons to rally, because they tend to come with inherent baggage. This latest poor excuse to buy stocks was economic demise, which para- doxically drove traders to rejoice about unlikely Fed tapering. The monthly employment report, late due to government dysfunction, showed extremely poor job creation in September. So, obviously, investors bought the market on the news, since the Fed will be unlikely to taper its asset purchases anytime soon. Hopefully, this slowdown will only be temporary, but given the moronic movement in Washington D.C., who can say for sure.

Tuesday’s Market

Market ETF	October 22	Year-to-Date
SPDR S&P 500 (NYSE: SPY)	+0.6%	+23.2%
SPDR Dow Jones (NYSE: DIA)	+0.5%	+18.1%
PowerShares (Nasdaq: QQQ)	+0.2%	+26.6%

Stocks rallied for a moronic reason, because the economy is distressed. I suppose we could justify it if we expect the slowdown to be temporary, due to the self-inflicted damage caused by the U.S. government. But with the debt ceiling issue likely to emerge again early next year, we have a new drag on the economy (some say old), the U.S. government. In case you missed it, stocks rallied because economic slowdown means no Fed tapering for now…

Economic Events

ECONOMIC REPORT SCHEDULE
Economic Data Point	Prior Period	Expected	Actual
FRIDAY
Employment Situation Report
-Nonfarm Payrolls	+193K R	+185K	+148K
-Private Payrolls	+161K R	+184K	+126K
Unemployment Rate	7.3%	7.3%	7.2%
ICSC Weekly Store Sales	-0.7%	NA	+1.4%
-Year-to-Year Pace	+1.0%	NA	+3.2%
Redbook Store Sales	+3.2%	NA	+2.9%
Richmond Fed Manufacturing Index	0		1
Treasury Int’l Capital (For. Demand)	+$31.0 B		-$8.9 B
Construction Spending	+1.4%	+0.4%	+0.6%
EIA Natural Gas Report (Last Week’s)	90 bcf		77 bcf

-R symbolizes “revised”

The Employment Situation Report, published a couple weeks late due to government shutdown, offered up bad news for America but good news for investors. The paradox exists because while a slowdown in the U.S. economy is apparent in the data, that same slowdown may ensure the Federal Reserve’s extraordinary stimulus efforts remain in place a while longer. So, it appears investors are about to party like it is 2013. But beware dear friends, because these are the types of parties that lead to horrible hangovers.

Let there be no doubt; the data was really bad. A net of 148K nonfarm jobs were created in September, which was far fewer than what was expected, not to mention short of the meager amount generated in August. Private nonfarm payrolls only marked an increase of 126K, which was again far below expectations and historic predecessors. The unemployment rate improved a tenth of a point to 7.2%, but as our subscribers understand well by now, that is because people are dropping out of the workforce prematurely. Whether they are collecting disability checks or living on the street we do not know, but we know they were capable of working a few years ago, and now they’re not; and we know it’s unnatural. So, beware those government representatives suggesting we rejoice today.

Overseas Markets

EUROPE	CLOSE	ASIA/PACIFIC	CLOSE
EURO STOXX 50	+0.6%	NIKKEI 225	+0.1%
German DAX	+0.9%	Hang Seng	-0.5%
CAC 40	+0.4%	S&P/ASX 200	+0.4%
FTSE 100	+0.6%	Korean KOSPI	+0.2%
Bloomberg GCC 200 Mideast	+0.1%	BSE India SENSEX	-0.1%

Storms are swinging Japanese shares these days, with serious concern about the island nation and its still unstable nuclear facility. China would seem to have taken a hit on the bad U.S. employment report, but it will likely be more seriously impacted Wednesday since the data was not published until Chinese shares had stopped trading. For some reason, I suppose because of the Christening of Prince George, European shares rallied today; but did anyone notice that Harry’s girlfriend was left off the invite list? There was also the news that the U.K. budget deficit is disappearing, with the help of economic recovery; I suppose that may have helped. I would look toward regional data for the reason for rise in the EU Tuesday.

Commodity Markets (CLOSE)

WTI Crude	-1.4%
Brent Crude	+0.4%
NYMEX Natural Gas	-2.0%
RBOB Gasoline	-1.3%
Gold Spot	+0.0%
Silver Spot	+0.0%
COMEX Copper	+0.9%
CBOT Corn	-1.3%
CBOT Wheat	+0.1%
CBOT Soybeans	-0.1%
ICE Cocoa	+1.4%
ICE Sugar	+0.2%
ICE Orange Juice Conc.	-0.2%
CME Lumber	+1.2%
CME Live Cattle	+0.8%

I suppose a modestly better construction spending data point lifted lumber prices; it was more likely the lack of a negative surprise on the data-point that drove wood prices higher. Certainly, the building sector is at this point hungry for good news again. Well, here’s one bit for you, mortgage rates are backing down.

Energy prices are backing down as well, but contrary to popular opinion it is not entirely due to the energy finds in the Dakotas. Rather, the poor employment data intensified concern about the American economy and the impact of the shutdown and debt ceiling panic. When the economy slows, Americans use less energy, whether due to fewer production runs in factories or because the electricity got shut off at home.

Corporate Events

Netflix (Nasdaq: NFLX) headed the corporate wire for various reasons Tuesday. The stock gapped wildly higher after reporting strong results Monday night. However, during the day, the momentum and valuation warning from the company’s own CEO, and the later publicly announced sale of the shares by large holder Carl Icahn sank the stock to below where it closed the day before. Might this be the end for all the momentum names? If so, look out Tesla (Nasdaq: TSLA), Facebook (NYSE: FB) and the rest of you. NFLX issues will probably be enough to bring some caution to these shares until their individual results either prove the stories or not.

HIGHLIGHTED EPS REPORTS
Company	Ticker
TUESDAY
Whirlpool	NYSE: WHR
Illinois Tool Works	NYSE: ITW
Freeport-McMoRan	NYSE: FCX
Delta Air Lines	NYSE: DAL
Forest Laboratories	NYSE: FRX
CIT Group	NYSE: CIT
Carlisle Cos.	NYSE: CSL
Lockheed Martin	NYSE: LMT
United Technologies	NYSE: UTX
EMC Corp.	NYSE: EMC
Potlatch	NYSE: PCH
Capella Education	Nasdaq: CPLA
McGraw Hill Financial	NYSE: MPH
Reynolds American	NYSE: RAI
Gulfmark Offshore	NYSE: GLF
Coach	NYSE: COH
Travelers	NYSE: TRV
State Street	NYSE: STT
Polaris	NYSE: PII
Harley-Davidson	NYSE: HOG
Lexmark Int’l	NYSE: LXK
Waters	NYSE: WAT
AK Steel	NYSE: AKS
RadioShack	NYSE: RSH
Regions Financial	NYSE: RF
Signature Bank	Nasdaq: SBNY
Fulton Financial	Nasdaq: FULT
RF Micro Devices	Nasdaq: RFMD
Broadcom	Nasdaq: BRCM
C.R. Bard	NYSE: BCR
Altera	Nasdaq: ALTR
Amgen	Nasdaq: AMGN
Unisys	NYSE: UIS
USANA Health	Nasdaq: USNA
Calamos Asset Management	Nasdaq: CLMS
Panera Bread	Nasdaq: PNRA
Cree	Nasdaq: CREE
Iberiabank	Nasdaq: IBKC
Xoom	Nasdaq: XOOM

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BIGGEST LOSERS	% Drop
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E-Commerce China Dangdang (Nasdaq: DANG)	-13%
IFM Investments (NYSE: CTC)	-13%
NewLead Holdings (Nasdaq: NEWL)	-12%
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