Stocks Should Drop with Investor Sentiment

The Dow just closed out the best January in 15 years, but the latest investor confidence survey may foreshadow a different sort of February and full 2012. State Street’s Investor Confidence Index declined, driven by European risk reduction, but U.S. investors are the most cautious of all these days. That stands in perfect contradiction to January’s performance.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Stocks Should Drop with Investor Sentiment

State Street’s (NYSE: STT) survey published Tuesday serves as a sort of confirmation of what I see developing for U.S. markets. The financial company’s measure of investor confidence showed its Investor Confidence Index fell to a mark of 92.4 globally in January, from 94.5 the month before. The decline was mostly driven by Europe, which we recently argued is already affecting the U.S. economy. Investor sentiment across the pond nearly drowned in it, sinking 10.1 points, to a mark of 91.6 in January. The reasons here are clear, as the euro area is near certainly in recession. Greece definitely is, with its GDP sinking in the mid-single digits at last check. But the trouble extends beyond Greece, as evidenced by the broad-ranging set of sovereign debt downgrades by S&P recently. The pain has already been felt across European shares, as the EURO STOXX 50 Price EUR gained 0.5% Tuesday and the iShares S&P Europe 350 Index ETF (NYSE: IEV) gained 0.7%.

Asian investors are apparently feeling a bit better about stocks, with that segment measure up 3.3 points to 96.9 in January’s survey. Still, while the index is sitting below 100, it means even Asian investors are cutting back on risky assets. What troubles me most is what I see developing for U.S. stocks. The Investor Confidence’s North American component index showed the most risk aversion, with a measure of 89.8, down 0.1 from December. The way economic data has been unfolding of late, investor confidence should wane further alongside consumer confidence, which was reported lower Tuesday. In my view, deteriorating data should also turn the tide on the market rally that started in early October 2011. Tuesday’s performance by asset managers seems to agree, with the shares of T. Rowe Price (Nasdaq: TROW), Legg Mason (NYSE: LM), Janus Capital (NYSE: JNS) and Calamos Asset Management (Nasdaq: CLMS) each in the red Tuesday.

State Street’s commentary seems to confer with my view, stating that investors in North America and Europe are maintaining “equity positions that can best be described as defensive.” For as long as the driver of caution was exogenous, despite Europe’s consumption of 20% of U.S. exports, I suppose American stocks could rise. But as the impact of European economic deterioration hits home, and as the ongoing realities within the U.S. economy once again become clear post holiday cheer, I expect further investor confidence deterioration to coincide with real capital damage.

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Manufacturing Points to Weakening Economy

The Chicago Purchasing Managers Index carried a clearly negative message Tuesday, with the Institute for Supply Management (ISM) saying, "key aspects of the report pointed towards a weakening economy." While the sector of the American economy remains secondary to services, it still offers insight into the domestic economy.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Manufacturing Economy Weakening

The Chicago PMI Business Barometer Index dropped to 60.2 this month, from 62.2 in December. It was yet another economic data point leaving economists looking lost. Economists surveyed by Bloomberg were expecting the index to rise to 63.0. More importantly, the decline leaves them to survey whether indeed the economy is slipping into just a slow slug growth rate like the Federal Reserve expects or into a legitimate recession.

The service sector continues to dominate the American economy, and so the manufacturing sector remains secondary today. It also has been buoyed by global demand, and so is an imperfect measure of domestic well-being. Still, however loose a tie manufacturing has to the domestic marketplace, it represents a great hope for many. President Obama, for one, is hopeful America might move forward to restore its industrial base, with a keen eye toward alternative energy. Mitt Romney, who appears set to win the Florida GOP debate, is willing to go a step further to ensure American companies have a better footing with perennially accused trade cheater China. Manufacturing is clearly an important cog for American economic progress. The leaner sector, which clearly benefited from the financial crisis and recession driven restructuring of organized labor contracts like those at General Motors (NYSE: GM) and Ford (NYSE: F), might just have a chance given some of these described actions and other plans for it.

Looking at the Chicago PMI Report, each component measure declined to a less expansionary point, with the seasonally adjusted New Orders Index falling to 63.6, from 67.1 in December. New Orders are of course a critical indicator of the road ahead. Because of the slower pace of ordering, Order Backlogs fell into territory marking economic contraction, with that component index at 48.3 now, from 57.3 in December. The shares of important industrials General Electric (NYSE: GE), Honeywell (NYSE: HON), Caterpillar (NYSE: CAT) and Deere (NYSE: DE) were all in the red Tuesday as a result.

Further inspection of the data shows the Production Index eased to 63.8 from 64.9 in December. The Inventories Index likewise fell to 51.6 from 52.0 in December. Perhaps of greater interest to most, the Employment Index declined to 54.7 from 59.2 in December, showing less propensity to hire among manufacturers. This certainly played a role in the slippage of employment services stocks Tuesday, with Monster Worldwide (NYSE: MWW), Korn Ferry (NYSE: KFY) and Manpower (NYSE: MAN) down approximately 2% to 3% each.

Supplier Deliveries improved, but this only says to me that there exists an environment of less demand. However, Production Material lead time lengthened significantly, which would counter that argument unless production material capacity has been left idle due to slowing demand. I expect there are some seasonal issues at play here, for instance, with regard to irregular maintenance of facilities and plants that may be occurring now.

Further observance of the manufacturing sector is advised now, as it may show the impacts of European strife and the global slowing described, warned of, and expected by the World Bank and IMF, not to mention by yours truly. Wednesday, we’ll receive the ISM Manufacturing Index, which will offer a better national view, where the Chicago PMI measures the Midwest. With regard to ISM’s report for January, economists are once again looking for improvement, with the index seen rising to 54.5, from 53.9 in December. I expect another let down is pending, and that manufacturing is indeed finding a slower growth point for now.

There are all sorts of pressures on the sector, especially within defense, where the U.S. and many other nations are reducing funding. Though shares of Raytheon (NYSE: RTN), Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC) and Alliant Techsystems (NYSE: ATK) traded mixed Tuesday. Still, with fewer orders coming to manufacturers from both private and public sectors, it seems the world may take a break from its fantastic global development of the last decade.

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Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Q4 GDP Growth Severely Flawed

Fourth quarter Gross Domestic Product (GDP) was reported higher, but the growth rate fell short of economists’ views. Stocks started lower on the news Friday and kept that way as a closer look at the data shows it has gaping holes in it. Thus, American economic activity may not be as supportive of stocks as valuations had accounted for up to today. Our analysis of the GDP report and our global economic outlook certainly advise for investor restraint.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Q4 GDP Warning

The government reported Friday that fourth quarter GDP grew 2.8%, which was well above the third quarter growth rate of 1.8%. Yet, stocks fell at the start of trading, leaving casual observers wondering what gives. Just ahead of closing, the SPDR Dow Jones Industrial Average (NYSE: DIA) was still roughly 0.6% lower, while the SPDR S&P 500 Index (NYSE: SPY) was off by 0.2%. That can be partially explained by the shortfall of Q4 growth to economists’ expectations, which were set at a +3.1% consensus based on Bloomberg’s survey. Still, you would think the much better growth would outweigh a few tenths of a point here or there. Well, that would be a correct assessment, so the reaction of stocks must be defined by a more complex set of factors, and those can be found in the details of the data.

The two most significant issues detracting from the best quarterly GDP growth since Q2 2010 both tie into consumer spending. First, and most importantly, GDP was lifted 1.94 percentage points by a build in inventories. Some are saying that this is okay, since third quarter growth was penalized by 1.35 percentage points due to an inventory draw down, however, I see no relevance. Despite the promotional environment of the fourth quarter, the aggregate performance of retailers was poor. This was also apparent by the December Retail Sales data. In other words, discounters like Wal-Mart (NYSE: WMT) and Costco (Nasdaq: COST) may have continued to steal market share alongside bargain online salesmen like Amazon.com (Nasdaq: AMZN) and eBay (Nasdaq: EBAY), while general operators like J.C. Penney (NYSE: JCP) and poor performers like Sears (Nasdaq: SHLD) now employ reinvention strategies to save themselves. In electronics, the success of Apple (Nasdaq: AAPL) and Amazon seems to come at the cost of Research in Motion (Nasdaq: RIMM) and Hewlett-Packard (NYSE: HPQ). Thus, on the whole, a soft economy leaves a competitive environment that can no longer support all players.

The other point that I see as significant came from the growth of the services sector in Q4, which only managed 0.2%, according to the government. Our services dominant economy cannot sustain significant economic growth without robust activity in services. Also, as I’ve pointed out in the past, the sales galore and holiday imploring environment of Q4 is likely to cost consumption in Q1, if not further. Without demand for services, what then will drive our economy?

Regarding the sustainability of economic growth, we also find issue in another factor that helped to drive spending in Q4. Americans dipped into their savings in order to fund consumption. The government noted that the personal savings rate, which measures savings as a percentage of personal income, fell to 3.7% in Q4, from 3.9% in Q3. Clearly, there’s only so far Americans can dip into savings, and considering the private debt problem that our nation still faces, there’s only so far this factor can drive our economy.

Therefore, and in conclusion, the market is just in its determination to penalize stock valuations now. Also, given the pitfalls that litter our path forward, including European economic recession (20% of American exports sold there) and geopolitical deterioration (Iran et al), investors are correct to proceed with caution.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Noise Still Drowns Out Housing Data

Over the last month or so the weekly mortgage activity data produced by the Mortgage Bankers Association has been choppy to say the least. That is because of the imperfect adjustment for holidays, including Christmas, New Year’s and in this week’s data, Martin Luther King Day. However, moving forward, except for President’s Day on February 20, there should be very little noise in the data, barring wild swings in weather. Therefore, we should be able to get a clearer sense of the trend in housing, and as the weather warms, an early idea about the spring surge some real estate pundits expect.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Noise Drowned Housing & Economic Data

This week’s Weekly Application Survey, covering the week ending January 20, included the Martin Luther King Jr. holiday. It was a bank holiday, and so comes to play in mortgage activity. For the week, the MBA’s Market Composite Index fell by 5% from the week before, handicapped by what we see as inadequate adjustment for the business drop-off that occurs on the Friday before and the Tuesday that follows every three day weekend. I’ve originated this viewpoint and continue to put it forth here.

Purchase Activity, which measures mortgage application activity tied to the purchase of homes, fell by 5.4% from the week just prior. I again attribute this decline to the holiday impact, despite the adjustment by the MBA. On an unadjusted basis, this index fell by 9.7%. However, we still cannot use this data in pure form in our forecasting or investment assumptions, for the reasons aforementioned.

The Refinance Index fell by 5.2%, again on the holiday noise. Mortgage rate direction varied across mortgage categories. For instance, the average contracted rate on 30-year fixed rate mortgages with conforming loan balances (417,500 or less) increased to 4.11% from 4.06% the week before. While the points decreased for 80% loan to value ratios, the effective mortgage rate still rose. As for jumbo loan balances (greater than conforming), the average contracted rate for same term fixed rate mortgages fell slightly to 4.39%, from 4.4%. While points rose here, the effective rate still decreased. FHA sponsored loans saw the average contracted rate on 30-year fixed rate loans rise to 3.97% from 3.91% the week before. Average contracted rates on 15-year fixed rate mortgages rose to 3.4% from 3.33%.

Even the four-week moving average of the Market Composite Index seems to me seasonally skewed as it moves out of the holiday inclusive period. For the latest period, this average was up 4.12%, and it should continue higher as it leaves the holiday season behind.

As we move forward, the weekly data faces little distraction, except for what may come from weather and also President’s Day in February. Thus, those of us studying this data point, and others, will get a clearer view to which to base more solid forecasts upon. That said, this benefit will not account for what may lie ahead of us, which I’ve begun talking about in recent columns. In fact, in my latest article, I based a sell call on paper profit rich homebuilders on this view. Today’s mortgage activity data, along with the Pending Home Sales Index decline and FHFA House Price Index’s monthly price increase have the relative shares of Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), J.P. Morgan Chase (NYSE: JPM) and K.B. Home (NYSE: KBH) trading mixed at this hour. K.B. Home was up 2.9% near noontime, while J.P. Morgan and Wells Fargo were lower by about 1%.

Article should interest investors in Savings & Loan stocks including Alaska Pacific Bankshares (OTC: AKPB.OB), Allied First Bancorp (OTC: AFBA.OB), Astoria Financial (NYSE: AF), AMB Financial (OTC: AMFC.OB), Ameriana Bancorp (NasdaqCM: ASBI), Anchor Bancorp Wisconsin (Nasdaq: ABCW), Bancorp of New Jersey (AMEX: BKJ), Bank Mutual (Nasdaq: BKMU), BankAtlantic (NYSE: BBX), BankFinancial (Nasdaq: BFIN), Banner (Nasdaq: BANR), BCSB Bancorp (Nasdaq: BCSB), Beacon Federal (Nasdaq: BFED), Berkshire Hills (Nasdaq: BHLB), Blackhawk Bancorp (OTC: BHWB.OB), Blue River Bancshares (OTC: BRBI.OB), Bofi (Nasdaq: BOFI), Broadway Financial (Nasdaq: BYFC), Brookline (Nasdaq: BRKL), Brooklyn Federal (Nasdaq: BFSB), Camco Financial (Nasdaq: CAFI), Capitol Federal (Nasdaq: CFFN), Carver (Nasdaq: CARV), Cecil Bancorp (OTC: CECB.OB), Center Financial (Nasdaq: CLFC), Central Federal (Nasdaq: CFBK), Chicopee (Nasdaq: CBNK), Citizens South (Nasdaq: CSBC), CKF Bancorp (OTC: CKFB.OB), Clarkston Financial (OTC: CKFC.OB), Clifton Savings (Nasdaq: CSBK), Close Brothers (OTC: CBGPY.PK), Columbia Banking (Nasdaq: COLB), Consumers (OTC: CBKM.OB), Dime Community (Nasdaq: DCOM), Enterprise (Nasdaq: EBTC), ESB Financial (Nasdaq: ESBF), ESSA Bancorp (Nasdaq: ESSA), Eureka Financial (OTC: EKFC.OB), FedFirst Fin’l (Nasdaq: FFCO), FFD Fin’l (Nasdaq: FFDF), FFW (OTC: FFWC.OB), First Bancorp of Indiana (OTC: FBPI.OB), First Bancshares (Nasdaq: FBSI), First Capital (Nasdaq: FCAP), First Clover Leaf (Nasdaq: FCLF), First Defiance (Nasdaq: FDEF), First Federal Bancshares of Arkansas (Nasdaq: FFBH), First Financial Holdings (Nasdaq: FFCH), First Independence (OTC: FFSL.OB), First Investors Fin’l Services (OTC: FIFS.PK), First Niagara (Nasdaq: FNFG), First Robinson (OTC: FRFC.OB), First Security Group (Nasdaq: FSGID), First South (Nasdaq: FSBK), Flagstar (NYSE: FBC), Flatbush Federal (OTC: FLTB.OB), Flushing Financial (Nasdaq: FFIC), Greene County (Nasdaq: GCBC), HF Financial (Nasdaq: HFFC), HMN Fin’l (Nasdaq: HMNF), Home Bancorp (Nasdaq: HBCP), Home Federal (Nasdaq: HOME), HopFed (Nasdaq: HFBC), Hudson City (Nasdaq: HCBK), Indiana Community (Nasdaq: INCB), Investors Bancorp (Nasdaq: ISBC), Jacksonville Bancorp (Nasdaq: JXSB), Jefferson Bancshares (Nasdaq: JFBI), Kaiser Federal (Nasdaq: KFFG), Kearny Fin’l (Nasdaq: KRNY), Kentucky First Federal (Nasdaq: KFFB), Lake Shore Bancorp (Nasdaq: LSBK), Louisiana Bancorp (Nasdaq: LABC), LSB Fin’l (Nasdaq: LSBI), Malvern Federal (Nasdaq: MLVF), Meridian Interstate (Nasdaq: EBSB), Meta Fin’l (Nasdaq: CASH), NASB Fin’l (Nasdaq: NASB), Naugatuck Valley (Nasdaq: NVSL), New England Bancshares (Nasdaq: NEBS), New Hampshire Thrift (Nasdaq: NHTB), New York Community (NYSE: NYB), North Central Bancshares (Nasdaq: FFFD), Northeast Community (Nasdaq: NECB), Northwest Bancshares (Nasdaq: NWBI), OceanFirst (Nasdaq: OCFC), Ocwen (NYSE: OCN), Oneida (Nasdaq: ONFC), Park Bancorp (Nasdaq: PFED), Parkvale Fin’l (Nasdaq: PVSA), Pathfinder Bancorp (Nasdaq: PBHC), People’s United (Nasdaq: PBCT), Provident Community (Nasdaq: PCBS), Provident Fin’l (Nasdaq: PROV), Provident Fin’l Services (NYSE: PFS), Provident New York (Nasdaq: PBNY), Prudential Bancorp of PA (Nasdaq: PBIP), PSB Holding (Nasdaq: PSBH), Pulaski Fin’l (Nasdaq: PULB), PVF Capital (Nasdaq: PVFC), QC Holding (Nasdaq: QCCO), River Valley Bancorp (Nasdaq: RIVR), Riverview Bancorp (Nasdaq: RVSB), Roma Fin’l (Nasdaq: ROMA), Salisbury Bancorp (AMEX: SAL), SI Financial (Nasdaq: SIFI), Southern Missouri (Nasdaq: SMBC), Sterling Fin’l (Nasdaq: STSA), Teche Holding (AMEX: TSH), TF Fin’l (Nasdaq: THRD), Timberland Bancorp (Nasdaq: TSBK), United Community (Nasdaq: UCBA), United Community Fin’l (Nasdaq: UCFC), United Fin’l Bancorp (Nasdaq: UBNK), Valley Fin’l (Nasdaq: VYFC), Washington Federal (Nasdaq: WFSL), Waterstone Fin’l (Nasdaq: WSBF), Wayne Savings (Nasdaq: WAYN), WSB Holdings (Nasdaq: WSB) and WVS Financial (Nasdaq: WVFC).

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