By Markos Kaminis
The stock market forgot to take her anxiety medicine last week, and she had a whole lot to worry about. The bad news came from every direction, whether it was housing, manufacturing, inflation or geopolitical data, most of it was unfavorable.
Housing sank deeper into the muck, contrary to what we were hoping might prove a seasonal lift. The NAHB/Wells Fargo Housing Market Index moved lower to 18, from a measure of 19 in May. Housing Starts also missed the mark, running at an annual pace of 975K, short of economistsʼ hopes for 985K.
In the manufacturing space, industrial production fell in May, where it was expected to rise, and capacity utilization declined to 79.4%, versus expectations for 79.7%. Northeastern manufacturing is languishing now along with the Midwest. The New York area manufacturing survey showed deterioration to negative 8.7 in June, while the Philly area measure also weakened to negative 17.1.
The Producer Price Index (PPI), a widely followed metric of inflation at the producer level, jumped in May. The PPI soared 1.4% on soaring energy prices, but excluding food and energy, it was up just 0.2%. Oil prices started to moderate last week, following a route we laid out for petroleum in our article “Oil Prices and Refiner Stocks.” The move was driven by favorable news flow, as Saudi Arabia indicated it might boost production, and a Kuwaiti oil minister said the natural price should be closer to $100. Then on Thursday, China announced it would hike energy prices, which was interpreted as a demand destroyer; this pulled oil significantly lower. But, within our article we included a caveat that negated the entire argument, and that was, “barring an Iranian event.” So, when Israel practiced for that eventuality on Friday, oil moved back up and closed at $134.62 (crude for July delivery).
The S&P 500 smashed through that imaginary floor at 1,350, moving down 3.1% to close at 1,318. Gold moved higher on the week, and the dollar weakened to $1.56 per euro. Volume and trading were impacted by quadruple witching on Friday, which encompasses the expiration of four separate types of contracts at the same time, so you would expect a bit of a lift on Monday as a result.
Despite the witchcraft, the close on Friday was disconcerting. We wrote you recently, in our article “Armageddon Renaissance,” that a retest of the March 10 lows seemed likely once the market started digesting inflation realities. Well, guess what, 1,273 on the S&P 500 is right around the corner.
The Week Ahead
Normally we would have to suggest that the Federal Reserve meeting, scheduled for Tuesday and Wednesday, might offer rescue. However, the Fed has done all it can to signal that it has become inflation-centric, if not manic. Therefore, it would seem likely that Bernanke and crew will leave the liquidity rescue helicopter behind this week.
The remainder of the week is littered with tragic consumer confidence and housing metrics weʼve grown accustomed to. Still, on Friday, Personal Income and Outlays for May could offer some good news thanks to the beginning of government stimulus distribution. Economists are looking for a 0.7% increase in personal spending for May. That euphoria may last only as long as the Farm Prices Report at 3:00 PM though, thanks to widespread flooding in the Midwest.
The weekʼs noteworthy earnings reports include: Monday – Walgreen (NYSE: WAG); Tuesday – 3Com (Nasdaq: COMS), Darden Restaurants (NYSE: DRI), Kroger (NYSE: KR); Wednesday – General Mills (NYSE: GIS), Monsanto (NYSE: MON), Nike (NYSE: NKE); Thursday – ConAgra Foods (NYSE: CAG), Discover Financial (NYSE: DFS), Micron Technology (NYSE: MU); Friday – KB Home (NYSE: KBH) and Steelcase (NYSE: SCS).