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This is a big week for the stock market. Not only do we get
some critical economic data this week, 3Q earnings season starts and the
major indices are likely to pick a direction.
There has been a lot of bullish activity for stocks over the
last 4-5 weeks. But the S&P 500 has been unable to take out resistance at
1,150 after repeated attempts over the last two weeks. At the same time,
1,140 acted as a solid floor over the last 6 trading days.
Something’s gotta give.
And with Factory Orders and Pending Homes Sales on the economic docket today,
ISM Services tomorrow, the ADP employment report Wednesday, and then Nonfarm Payrolls on Friday,
there’s enough data to tip the balance, one way or another.
And don’t forget, the Fed’s promise/threat of more monetary
easing looms.
It’s almost impossible to miss the uncertainty being expressed by the financial
media these days. Most economic data has shown moderate improvement lately.
And earnings estimate revisions have not been severe, suggesting that the
third quarter will be another solid quarter for earnings.
Final GDP forecasts for 2010 have been reduced to below 2%. But even this hasn’t
knocked stock prices lower.
The financial media, and investors alike, have grown
accustomed to rallies being short-lived. Nobody wants to get fooled into
thinking this rally will continue. But at the same time, it’s easy to imagine
the economic recovery picking up some steam. And there aren’t many investors
who doubt that the Dow Industrial, Nasdaq, and S&P 500 will move higher
once employment starts to improve.
The key factor for
stocks recently has been the U.S. dollar. It’s traded consistently lower in
response to the Fed. This morning in pre-market, the dollar was up against
the euro, and U.S. index
futures were down across the board.
The dollar is the single most important catalyst for stocks.
Keep an eye on it.
Switzerland isreportedly going to require its
banks, included UBS (NYSE:UBS) and Credit
Suisse (NYSE:CS) to raise their capital base to double what was agreed upon
at the Basel III meetings.
Basel III required banks to have 10.5% total capital. Switzerland may boost that to 19%.
UBS and Credit Suisse already hold
$2.6 trillion in assets. Talk about too big to fail, that’s 4 times the size
of Switzerland‘s
economy.
Investors may be worried that U.S. banks will be required to raise more
capital in response. But it seems to me we should let the banks focus on
housing issues.
Bank of America (NYSE:BAC)
is the latest bank to suspend foreclosure proceedings to
review documents. Citigroup (NYSE:C) has said that its document review
process is fine.
So far, I’m not seeing much indication that this news is
bullish or bearish for these companies. One thing that might get a boost from
this news is consumer spending. The longer the foreclosure process is
delayed, the longer some Americans stay in their homes with no mortgage
payment.
Of course, this gets my conspiracy theory juices flowing.
What better way to ensure spending will finish the year strong than to
suspend foreclosures and delay the inevitable?
Of course, I’d like to hear your thoughts here: [email protected]