U.S. stock index futures were lower on Tuesday morning.
Global markets were mostly lower overnight as Australia's central bank
raised interest rates for the second time in this cycle.
Today's Economic Calendar:
- Bank Reserve Settlement
- MBA Purchase Applications 7:00 AM ET
- Challenger Job-Cut Report 7:30 AM ET
- ADP Employment Report 8:15 AM ET
- Treasury Refunding Announcement 9:00 AM ET
- 30-Yr Bond Announcement 9:00 AM ET
- ISM Non-Mfg Index 10:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- 3-Yr Note Announcement 11:00 AM ET
- 10-Yr Note Announcement 11:00 AM ET
- FOMC Meeting Announcement 2:15 PM ET
News For Thought
Israel seizes cargo ship carrying weapons and links Iran and Hezbollah as
participants. According to Reuters: "Israel said on Wednesday it intercepted
a container ship carrying weapons in the Mediterranean and indicated they included
missiles destined for Lebanon's Hezbollah guerrilla group. Unconfirmed Israeli
media reports said the weaponry was supplied by Iran."
Violence on the rise in Iran. According to Stratfor.com: "Iranian police
clashed with supporters of Iran's opposition leader Mir Hossein Mousavi that
gathered in Tehran as the country marks the 30th anniversary of the storming
of the U.S. Embassy, Haaretz reported Nov. 4. Iranian security forces assembled
in Tehran to prevent opposition gatherings. A witness said police clashed with
protesters, using batons to disperse them. Another witness said police and Basij
forces were walking around the British and Russian embassies in central Tehran.
There are unconfirmed reports from the Iranian news outlet Mowjcamp that Mehdi
Karoubi was in attendance at the protests and was beaten by the security forces."
Here is more stunning data for the Democrats, who have made this their number
one issue. According to Rasmussen: "Nineteen percent (19%) of all voters say
passage of the legislation is Very Likely while 10% say it is Not at All Likely
to pass. Most voters offer an assessment in between those extremes, with 34%
saying the plan is Somewhat Likely to pass and 26% say Not Very Likely."
Mixed results for GOP. Republicans won governorships in Virginia and New
Jersey, but failed to win the key New York race in district 23 that many were
calling a "referendum" on president Obama's policies. Lots of spin from both
sides is likely forthcoming on this one.
Exxon gets in on Iraq's oil. According to The Wall Street Journal: "Iraq
is expected later Wednesday to award its giant West Qurna-1 oil field in southern
Iraq to a consortium comprising Exxon Mobil and Royal Dutch Shell." The consortium
didn't get the big prize, though. As the Journal reports: "West Qurna-1, with
estimated proven oil reserves of 8.6 billion barrels, was one of eight oil and
gas fields up for auction in June this year. However, only one oil field was
successfully awarded -- Rumaila, Iraq's largest producing oil field. The successful
bidder, a group made of BP PLC and China National Petroleum Corp. signed a final
$15 billon deal Tuesday to develop the field."
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The S & P 500 and the S & P 500 SPDR ETF (NYSE: SPY) are dancing between
the 20 and 50 day moving averages. Intraday volatility is rising. And we are
in the midst of a very important week. That means that anything is possible.
Yet, as more time passes, the odds of a major market crash are diminishing as
downside momentum is starting to dissipate. And if Friday's employment report
is way better than expectded, we could see a reignition of the stock market's
rally, perhaps for the rest of the year.
Chart Courtesy of StockCharts.com
The better than expected economic news began to filter in on Wednesday morning
as Mortgage applications rose, and the Challenger Job Cuts report showed a 51%
reduction in job cuts compared to 2008. The ADP Employment report will also be
released before the stock market opens. The Fed will make its latest interest
rate announcement in the afternoon. And in between, we’ll get all kinds of other
goodies that could move the market, including the U.S. Energy Information Agency
oil supply report.
Chart Courtesy of StockCharts.com
Thursday we get jobless claims and the Monster Employment Index, both a prelude
to the big number of the week, the employment report on Friday morning. Throw
in a few earnings reports, the fallout and the spin from two important gubernatorial
elections, and perhaps a merger or two, as we’ve seen lately, and you’ve got
the potential for all kinds of mischief, misdirection and volatility.
Yet, as we look at two of our employment bellwethers, Manpower Inc. (NYSE: MAN)
and Administaff (NYSE: ASF), Wall Street's expectations are very clear. Both
stocks have hit the skids, losing 25% and 12% respectively, compared to the relative
tame 5% decrease in the S & P 500.
Chart Courtesy of StockCharts.com
What this says is that Wall Street remains concerned about jobs, as exemplified
by Manpower's big decline, and the fate of small businesses, as Administaff's
shares indicate. But, there is some data now that suggests that Wall Street may
be wrong on the fate of the employment situation, which makes Friday's employment
report a potentially explosive one for the market, especially if the payroll
number is better than the consensus of 175,000 job losses. The range is quite
wide, though, with estimates extending from 55,000 to 200,000.
Administaff's earnings, released on November 3rd, are still indicative of the
current climate, but are not that bearish, which is why watching the stock over
the next few days is worthwhile. The company reported decreased revenues, and
earnings, and a 16% decrease in year over year profits based on "an expected
9.9% decrease in the average number of worksite employees paid per month, partially
offset by a 2.8% increase in revenues per worksite employee per month," and "higher
benefits costs in the 2009 period due to higher utilization of health benefits
by worksite employees, including large claim activity and increased COBRA participation," according
to the company's earnings news release.
There is a glimmer of hope in the company's survey of small businesses, as "61
percent of participants said they are maintaining current staffing levels, while
28 percent are adding new positions, up from 23 percent three months ago and
18 percent six months ago. Layoffs were named by 11 percent as a current management
strategy versus 16 percent in July and 19 percent last May."
Still, as Administaff points out in a separate news release, signs of improvement
in small businesses are still tepid as "More than 52 percent of small business
owners expect an economic turnaround in 2010, while 13 percent indicate that
a rebound is happening now, and 21 percent think the recovery will be in 2011
or later."
Other survey results are increasingly important in the wake of the election results
from last night, as "The economy was listed by 76 percent of business owners
as one of their biggest short-term concerns, down from 83 percent in July, followed
by 50 percent citing government health care reform, 41 percent listing controlling
operating costs and 39 percent specifying rising health care costs. However,
for the longer-term, those who said they were “very concerned” once again listed
the economy in fourth place at 41 percent, whereas 47 percent named government
expansion and the effect on business as the leading issue, 45 percent cited potential
tax increases as second and nearly 42 percent designated the federal deficit
and the total national debt as third."
The real question for investors is whether we’ve gone anywhere lately. And the
answer is maybe, at best. The S & P 500 has fallen below its 50-day moving
average but has not really broken below the 1040 level convincingly enough to
bring out the big bears. What we’ve seen are minor forays and probes by traders
trying to see if the market will break. So far it hasn’t broken. And that means
that as time passes, the news ahead will likely influence the way things turn
out.
Conclusion
We’ve had a 5% correction in the S & P 500 over the last two weeks. We’ve
seen profit taking in the big Nasdaq technology stocks. And yet, we have not
seen a real honest to goodness market breakdown.
Now we've had Republicans make gains in two important gubernatorial elections,
but not in a key House of Representatives election in New York, which leaves
the question of whether the results in Virginia and New Jersey can be seen as
a "referendum" on Obama policies.
There are some glimmers of hope in the employment picture, albeit small ones.
Still, a lot depends on what the Federal Reserve says and does with regard to
interest rates. And unless the Fed is out of its mind, it won't likely say or
do anything ridiculous in this climate.
So for investors, it looks as if the longer the market holds up, the least likely
is the chance that we’ll see a crash in the short term, barring news or an external
event. In other words, the bears are running out of time. If they don’t overwhelm
the bulls within the next few days, the up trend is likely to reassert itself.
Still, it’s foolish to make any huge bets before Friday’s employment report.
Know when to sell and how to make money when the market falls. Get a detailed
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