SUMMARY:
- Market scores a gain but Nasdaq looks like an April Fool
- National manufacturing contracts in March.
- Market holds where it has to hold, but fails to deliver a serious
bounce.
Stocks hold gains but the leading index action has little punch.
Tuesday was a session where the very recent trends all took a step back.
Stocks had sold 4 straight sessions while gold and oil rallied. As so
often happens after a steady push there is a need to pause and take a
breather. It is hard to view the Tuesday action much more than a pause in
the recent weakness, but there were some sinews of strength. The indexes
held where they had to hold, but the formerly leading techs showed no
strength. Nasdaq volume was low, the action was up and down, and the
indexes stalled at near resistance late and gave back much of the earlier
gains. It was up to the large caps to do the lifting, and they managed to
hold their end up.
The session was barely hanging positive when news came out that Hussein
was to give a live address at 12ET. When a short 'non-Hussein' statement
(according to Hussein experts) supposedly from Hussein was read by the
Iraqi information minister (not even a Hussein look alike) the market took
that as another indication that Hussein was not capable of giving a
current speech and that perhaps the rumors that Hussein's family was
making plans to leave Iraq were based in some fact. The market rallied on
the prospect. If Hussein remains incapacitated and is not improving (of
course if he is dead you could argue that was an improvement) there would
be little reason for many to stay with the ship given the heavy military
losses and the inevitability of the outcome. The Iraq leadership that is
left has done a pretty good job of keeping up a good front, but that will
eventually unravel if Hussein is not able to keep the order (a.k.a.,
terror) with his personal assistants and martyr squads. Who knows when
that would happen, however. When they fold, they fold quickly. The key
is keeping up the pressure militarily and working on empowering the Iraqi
citizenry. The latter are still quite gun-shy after being left in a knife
fight with only a plastic fork for defense back in 1991.
After that Hussein no-show rally, the indexes could not move past
resistance and gave back half the rally. They had to bounce in the last
20 minutes to hang onto the session gains. Bottom line, it was a bounce
whose main attribute was Nasdaq weakness. The rising NYSE volume could
set the stage for a recovery, but without Nasdaq the market was not
showing much more than a relief bounce from 4 selling sessions.
THE ECONOMY
National manufacturing index really implodes.
46.2 was well below the 49.0 expected reading, and it shows the
manufacturing economy went into hibernation again during the pre-war days.
Following the Chicago report, the ISM fell for the first time in five
months. New orders fell 6% to 46.3 while the employment index fell to
42.1 as a weak manufacturing jobs market picked up speed to the downside.
Prices paid reflected the continued surge in energy prices, spurting to
70.0 from the February 65.5. That is getting to the point of real pain
for manufacturers as internal prices rise. At some point, regardless of
how slow the economy is, they will have to raise prices or close their
doors. That is the old 1970's nemesis stagflation: slow economy, high
unemployment, high inflation. Prices are edging higher without any real
economic growth. That is something to be feared.
If this all sounds pretty bad, well, it is. There is a lot of hope out
there, but no real action. Greenspan hopes things will pick up after the
war winds down. His ring-kissing cadre of scale-eyed economists voices
the same hope in almost ritualistic chanting. Hope, as in the stock
market, still rhymes with dope. Still others like to say that the
manufacturing sector is not very significant to the U.S. economy anymore,
but they would be wrong. Services, the larger part of the economy, have
been holding up much better, but that sector along with continued consumer
spending did not keep us out of the recession and they are not getting is
out of recession. There is a lot of talk about entering 'another'
recession. As far as manufacturing is concerned and as far as we are
concerned, we never got out of the first one. Sure growth picked up to
positive levels, but it has never come close to the magnitude of the drop
in GDP growth the economy experienced. Any growth is nice, but relative
to where the economy came from it is still like a carp on hot pavement
gasping for breath.
Weekly chain store sales pummeled.
At the first signs of war retail sales did not buckle. Now that the war
is really settling in, chain store sales are falling as fast as we wanted
Iraq to fall. The BTM/UBS weekly survey reported a 1.4% drop in sales,
the largest drop since the first week of December 2002. Redbook logged a
1.7% drop for the prior 4 weeks. Some blame a later Easter, but this is
something that happens during televised wars: people watch that which is
most important, and that is our troops. The economy slows down as
consumers pull together and stay at home to watch the war returns. That
is what helped worsen the 1991 recession even as the stock market started
running after the bombing campaign started. That is the 'oxymoron' of the
market we have discussed before: economics can still look as if they are
in the toilet (e.g., the 1991 recession in the making) even as the market
takes off. Thus, while economics are important to understanding the big
picture, current and even near term economic events don't hold sway over
what the market is doing right now. |
