Marketview: Headline Atrophy $C, $MS, $FCX, $WMT, $KO, $SO

• Posted by DynamicHedge
• on December 3rd, 2011

We closed the Thanksgiving week with dour news that Standard and Poors had downgraded Belgium.  As the equity indexes went out on their lows in a thin trading session Friday, the situation looked quite bleak.  This week started off with a bang as Black Friday retail numbers looked extremely good and rumors were circulating that the IMF was going to prepare a $600 billion loan for Italy, as well as the typical (and mythical) Eurobond chatter.  The huge gap up off such deep levels couldn’t be ignored.  Wednesday the Fed piled on with the announcement of a coordinated action with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank to provide discounts on existing dollar swaps.  This was the perfect setup to run the equity indexes higher into the better than expected nonfarm payrolls number on Friday.

Winners: $C, $MS, $FCX, $HAL, $SLB, $BA, $CAT, $DOW

Losers: $WAG, $TGT, $WMT, $KO, $ABT, $MDT, $SO, $EXC

This is one of the only times I have ever seen every single stock in the $OEX index close higher for the week.  Considering the breadth of industries covered and the wide array of news that can impact individual stock prices, this is further evidence of the rising correlation of markets in recent years.  We know the players and the usual suspect tickers and how they respond to the risk-on risk-off news flow by now.  By the time something becomes this predictable it usually means we are in for a bit of a shakeup.  I expect to see some new themes emerge as we roll into the next year.  My feeling is that Tech will play a major roll.  Pretty crazy how much $C and $MS squeezed higher.

The next EU leadership meeting takes place December 9 in Brussels.  This date seemed a lot more important before the central banks tipped their hand towards coordinated action.  Yields for Eurozone countries have come off significantly in the last few days.  There is still time before the next major funding is required for periphery countries, but there is only so much temporary action that can be taken before these guys lay out a plan.  This whole process has led to a certain headline atrophy. which will hopefully lead to a calmer December.  Market participants are getting numb to the numbers and what is at stake, so unless there’s another surprise resignation or referendum we should see the new year without another heart attack scenario.

It’s worth noting that the TED spread didn’t respond to news of the coordinated effort in the same way that the sovereign credit and equities markets did.  We should have seen the spread lower but it actually moved higher; indicating generally higher credit risk environment.  The TED spread is a slow mover, but this divergence  is definitely a red flag.  To be clear: this isn’t a red flag for Monday morning, but it is a red flag for the weeks and months ahead.  If this doesn’t resolve, 2012 will be a rough year.

Winners:

Losers:

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