EmailIt was a vintage performance by the equity market yesterday as it battled back from large losses to end the session with only modest losses. In the process, the media discourse was changed from pointing to the beginning of the long-awaited correction to heralding the remarkable resilience of stocks and the support they continue to draw from the Fed's easy-money policy.
The trading action was emblematic of an anxiousness on the part of sidelined (and frustrated) participants to buy on weakness. That isn't a new disposition, however. Buying on weakness has been a trademark response ever since the Fed launched its quantitative easing program in March 2009.
Sidelined investors may get that chance again today. It is hard to say. The S&P futures are trading in-line with fair value, setting the stage for a relatively flattish start for stocks.
There isn't a specific piece of news to explain the inaction on the part of traders. It could perhaps reflect a belief that trading conditions will be somewhat thin as participants in the Northeast cut out early to deal with what is forecasted to be a huge snowstorm, starting today.
The stronger influence, though, is probably just the realization that the market is due for a period of consolidation after the strong start to the year.
There have been some bullish catalysts today. China reported stronger than expected trade data (although it was skewed upward since the Lunar New Year took place in January last year). The EU has reportedly reached agreement on the outline of a EUR 960 bln budget. LinkedIn (LNKD) impressed with its earnings report. And the US trade deficit hit its lowest level in December since January 2010.
In terms of the trade deficit, it narrowed to $38.5 bln from $48.6 bln in November. The Briefing.com consensus stood at -$45.4 bln.
December exports, aided by a $3.8 bln increase in industrial supplies and materials (31% of which was nonmonetary gold), were $3.9 bln more than November exports. December imports, held back by a $4.2 bln decline in industrial supplies and materials (78% of which was crude oil), were $6.2 bln less than November imports.
The narrowed trade deficit probably stems in part from the effects of the brief strike at the Ports of Los Angeles and Long Beach. If so, we could see a widening of the deficit in January.
While the drop in the deficit was much larger than the consensus expected, it was not far off from what the BEA assumed in the fourth quarter advance GDP data. The BEA anticipated that, excluding nonmonetary gold, the trade balance would fall to roughly -$40.0 bln. According to the actual data, the trade deficit excluding nonmonetary gold dropped to $41.0 bln.
That means the huge “surprise” in the trade data will not result in an upward revision to fourth quarter GDP.
--Patrick J. O'Hare, Briefing.com
(Editor's Note: The original report indicated the trade deficit, excluding nonmonetary gold, was $39.7 bln. It should have read $41.0 bln)
