Flash crashes, billion dollar bank trading losses, computer glitches, botched IPO’s, LIBOR manipulation… it’s no wonder the retail investor (i.e. the little guys on main street) have stayed out of the markets. Who really controls them? When Wall Street heavy weights like hedge funds and other institutional trading firms sit on the sidelines it becomes… lets say interesting.
Volume today was light… no extremely light… no almost nonexistent. Not just regular August-everyone-is-on-holiday light volume. No it was plain out so down that one investor on twitter wrote “volume is so quiet I can hear a bonus drop.” Thats because hedge funds are sitting on hordes of cash and for mainly two reasons: 1) Will Super Mario bust out the Bazooka (FED looks unlikely to), and 2) Who’s gonna be President thus directing policy.
Simply put the institutional investors are sitting put because they don’t yet know what the policy rules to play by will be, while the retail investor is preserving principle through government bonds and avoiding the stock market because they can’t figure out the rules of the market.
Then yes, the other thing. Today Israel crept its way across the news. The State has been conducting defense drills for citizens, stocking up on gas masks, added Avi Dichter to Cabinet and to Netanyahu’s Security Cabinet this week, as well as Netanyahu and Obama are set to meet in late September/ early October.
The Pentagon was briefed by Defense Secretary Leon Panetta that Israel hadn’t yet made a final decision on their plans to launch an airstrike against Iran’s nuclear facilities. He did say “Obviously they are an independent, they are a sovereign country. They’ll ultimately make decisions based on what they think is in their national security interest.”
From August 31st when Ben Bernanke gives his speech at Jackson Hole to November 6th when the U.S. Presidential Election is held the markets will be caught in macro news limbo. And there are many potential events that can all occur during or right after that period.
Politics throws a wrench into everything. War throws another one.
We likely will have a rally regardless of which U.S. candidate gets elected, we’ll just have a larger rally if its a GOP win. Oil will obviously go up if Iran gets attacked. And the U.S. will get dragged in the conflict to keep the Straits of Hormuz open.
We did get some good news with Homebuilder Confidence in the U.S. coming in at a five-year high. The index rose to 37 the best reading since February of 2007.
In equity trading today:
Deere (DE) got hammered after missing on earnings and fell 6.28% to close at $75.10 a share.
Staples (SPLS) came in line with earnings expectations but sales declined globally. The company also gave the dreaded lowering of outlook for guidance which saw the share price fall a whomping 14.60% to close at $11.49 a share.
Cisco (CSCO) had a big earnings beat after the bell. Shares rose 5.19% in after hour trading to $18.25 a share. Earnings Per Share came in at 47 while the estimate was for 46, Revenue came at $11.70B with the estimates at $11.61B. The bigger news was that the company boosted its quarterly dividend to 14c share from 8c – making the stock now a 3%+ dividend yielder.
The DOW (INDU) lost 7.36 points at -0.06%. The Nasdaq (COMP) rose 13.95 points at 0.46%. And the S&P 500 (SPX) gained 1.60 points at 0.11%.
Oil rose 90 cents to $94.33 a barrel of non-Iranian crude.
Gold gained $4.20 to close at $1,606.60 a Troy ounce.
The not beating the inflation rate 10-Year Note fell today pushing the inversely correlated yield up to 1.81%.