U.S. Financial Markets rallied Tuesday on speculation that Republican Scott Brown would win the late Senator Ted Kennedy’s vacant seat. A Brown win could cause potential problems for Democrats and those in favor of President Obama’s health care plan. As a result, the health care index ($HCX) closed up 2.04% while the hospital index ($RXH) closed up only 0.61%. The hospital index opened lower, but traded higher throughout the day as the rest of the market rallied.
The markets began pricing the Republican win early in the trading session. The U.S. Dollar and equity markets rallied on the speculation that a Republican win in Massachusetts would help to bring Washington closer to normalcy. However, Brown’s victory may have some serious economic implications that many have not considered. Scott Brown’s victory implies less stimulus money, lower expected future inflation, and a reduced likelihood of a tax increase.
Brown’s victory reduced the likelihood of a tax increase which can explain much of today’s rally. The first two implications are related since a decrease in our current level of deficit spending will in turn decrease expected future inflation. However, lack of necessary stimulus could result in a serious problem. For the record, I disagree with deficit spending, particularly when the intent is to influence the business cycle. With this in mind, reducing or eliminating the current stimulus policy will cause us to fall into a Depression. The government cannot stop stimulating this economy without certainty that we are recovering. Notice I said CERTAINTY and RECOVERING.
Both Intel Corp. (INTC) and J.P. Morgan Chase & Co. (JPM) beat analyst estimates as well as Whisper Number expectations last week. Both companies also traded lower on Friday with heavy volume. This negative response to “positive” news suggests negative sentiment among traders, both professional and retail, and is in line with my expectation and forecast that this earnings season will bring the markets closer to reality.
Citigroup Inc. (C) and IBM (IBM) report Tuesday. Worse than expected results will provide more ammunition for the bears and potentially the first 2 day loss for the indices since early December .
 INTC $0.30 Analyst Estimate vs. $0.33 Whisper Number Expectation vs. $0.40 Actual
JPM $0.62 Analyst Estimate vs. $0.66 Whisper Number Expectation vs. $0.74 Actual
 INTC traded on 1.31 times previous day’s volume, JPM traded on 1.84 times previous day’s volume
 December 7 and December 8
Intel Corp. (INTC) will report after market close today. Intraday INTC is up about 2%. Analyst estimate $0.31 EPS compared to a slightly higher Whisper Number. If earnings are in-line with analyst estimates, I expect to see a decent sell-off. A broad market sell-off will follow tomorrow if comfort cannot be found in J.P. Morgan Chase & Co. (JPM) earnings results.
INTC Last 6 month
 +$0.45 (2.13%) to $21.42 at 2:26 EST
 Whisper Number can be found at http://www.whispernumber.com
The markets experienced a modest 6 day rally to begin 2010 in what many are calling a continuation of the current up trend. Although the markets have rallied nicely from the November lows and finally broke out above December’s resistance levels, this rally is lacking significant substance. Market Fallacy has been bearish for some time now. While not all data has conclusively supported this rally, the important indicators continue to suggest a future decline. Sadly, the brilliant talking heads on CNBC are calling for a “bigger event” to act as a catalyst for this market. Unemployment (although a lagging indicator) has been 10% for two consecutive months, today’s retail sales numbers were much worse than expected and Alcoa severely missed analyst expectations. If this any indication on how earnings season might go: here is the BIGGER EVENT.
SPX Last 9 Months
 Approximately 2.86%
 November Consensus 10.2% vs. Actual 10.0%, December Consensus 10.1% vs. Actual 10.0%
 Consensus 0.4% vs. Actual -0.3%
 Analysts Estimate 0.6 vs. Whisper Number 0.07 vs. Actual Earnings of 0.01
Futures rally on better than expected Q3 GDP (3.5% vs. 3.2% median estimate). Is this enough to stop the current retracement? There will be an early morning pop, and the markets won’t take long to reveal which way they are headed. If the early morning gains are not sustained, SPX will retest 1000. Yesterday, NASDAQ closed below 50 day moving average on 120% of 10 day average volume.
Posted in Stock Market
Tagged gdp, spx
I apologize to those consistently checking for new posts, and I thank you for your dedication. As the school year came to an end, I didn’t feel comfortable posting without giving my undivided attention to the current events in the market. The markets are dynamic and require constant interpretation.
Having said this, I’d like to reiterate my positions and price targets. I am still bullish on the financial sector, as well as the overall market. I can see both the DJIA and the SPX testing 10,000 and 1000 respectively before any significant resistance and/or retracement. During last week’s move higher, the trading volume spiked above the 10 day average, about 5B. This week is setting up for a huge move, many will suggest lower, but I believe we could see the mother of all short squeezes. As of the end of March, there was approximately $3.9 trillion in money-market fund assets and about $3.4 trillion in equity mutual fund assets. This unusual proportion implies that the current rally could pick up steam, and fast. From August 2008 to March 2009, there has only been one month where equity assets have increased, December. Although February to March did increase, April’s numbers will be more telling. Money-Market assets have consistently increased from September 2008 to January 2009, remaining essentially constant from January to March. May of 2008 boasted excess of $6 trillion in equity assets suggesting the current position could almost double. The price impact of this large of a monetary influx would be tremendous. Yesterday’s decline was short lived, and it should be noted that tech did not decline as much as the rest of the market.
After the market closes I will continue the post.