Disappointing economic data continued to weigh on stocks on Thursday, keeping with a theme that has been present for much of August. That theme has the S&P 500 lower by more than 4% on the month and the latest batch of weak data sent the index lower by 8.1 points to a close at 1047.22. After shedding 74 points, the Dow Jones Industrial Average settled at 9985, its first close below 10,000 in seven weeks. Tech continues to be pathetic as the Nasdaq lost almost 23 points to settle just below 2119. The Russell 2000 lost more than points to close below round-number support at 600.
On Wednesday, the market was doomed by weak durable goods and new home sales data. Today it was jobless claims. Actually, the number came in a bit better than expected, falling by 31,000 to 473,000 for the week ended August 21. When the number came out before the market opened, futures soared and it looked stocks may be headed for at least small gains on the day. The pre-market positivity was never really solidified and small gains wilted by early afternoon, sending stocks lower.
Even though jobless claims were supposedly ''better'' than they have been, the reality is the few traders that were at their desks today and not in the Hamptons were able to take advantage of the notion that ''less bad'' just is not going to cut it when it comes to economic data. Stocks have become so beholden to economic data points recently that the data needs to be good, great, positively surprising or some derivative thereof to jolt stocks higher and that just is not happening.
Speaking of data, tomorrow should be an interesting with the first revision to second-quarter GDP being released before the before. When the initial reading was released last month, the number came in at 2.4%, certainly nothing that would confuse the U.S. with China or India, but worse yet, that number would not even confuse the U.S. with Sweden.
Do not expect that 2.4% growth figure to hold. Looking at the chart below, you will see that economists have been steadily paring their estimates and 1.4% growth may even be too much to hope for.
Another chart (below) shows that most economists have stuck to an estimate of 1.5% and while only a small number are really bearish, forecasting a reading of 1% or less and an equally small number are bullish, if it can be called that, expecting the number to stay above 2%. It bears noting that almost all of the recent data releases that have punished stocks have missed estimates by wide margins, which says the economists that are being polled in these surveys are less accurate than your local weatherman.
GDP Estimates #2
Speaking of forecasts that probably need to be revised to the downside, it seems like only yesterday that I wrote in a couple of market wraps that said analysts might need to boost their year-end forecasts for the S&P 500. Well, it was not yesterday, it was several months ago, but things change in the market and now it would appear forecasts calling for S&P 500 1275-1300 by the end of the year may need to be scaled back.
You may have heard about the strategist from French bank Societe Generale that said the S&P 500 could plunge all the way to 450. That might a wee bit aggressive, but it is worth noting that Birinyi Associates trimmed its year-end forecast on the index by 7.5% to 1225 on concerns that stocks like Procter & Gamble (PG) and Wal-Mart (WMT) will not stem their declines this year, Bloomberg News reported.
Along the lines of stocks that need to get things headed in the right direction but may be challenged to do so there is denim and apparel retailer Guess (GES). Guess issued an earnings report that missed estimates yesterday after the market closed. Making matters worse, the company's outlook for the rest of year was less than encouraging as the company cited uncertainty about the global economic recovery. The result was a decline of nearly 11% for Guess shares on volume that was roughly five times the daily average.
If you're looking for tomorrow's victim in the preppy retail space, look no further than Obama family favorite J. Crew (JCG). The company reported second-quarter earnings today after the close, but forget those results. J. Crew lowered its third-quarter guidance to 55 cents to 60 cents a share, well below the consensus estimate of 71 cents. For the full year, J. Crew expects a profit of $2.25 to $2.35 a share, below previous guidance of $2.35 to $2.45 a share. The Street was expecting $2.46. Like Guess, J. Crew cited uncertainty in the global economy. Whatever the reason for the downbeat guidance, investors are not happy and the shares are down 7.3% in the after-hours session as of this writing.
J. Crew Chart
It is hard to find happy investors on the long side these days, but if you are long data storage firm 3Par (PAR), these are fun times. Dell (DELL) made an initial bid for 3Par earlier this week, only to be trumped by rival Hewlett-Packard (HPQ). HP offered $24 a share for 3Par and Dell countered this morning with a $1.6 billion bid that values 3Par at $24.30 a share.
A mere 30-cent increase probably had HP chuckling. HP knows that it has the better balance sheet and used that strength to trump Dell one more time with a $1.8 billion counter offer. That values 3Par at $27 a share. 3Par said on Thursday morning that it had agreed to the Dell offer, so it will be interesting to watch this saga continue to unfold, but the reality is HP is the likely victor here.
3Par will give its eventual acquirer access to the booming cloud computing craze and that is the reason why Dell and HP are willing to pay up for 3Par. Regardless of who wins 3Par, a company that has hardly been profitable since it was born 11 years ago, the real winners are 3Par shareholders because this stock traded for less than $10 two weeks ago.
There was more acquisition news out of Silicon Valley today. HP said it would acquire cloud computing firm Stratavia and Cisco (CSCO) said it would acquire online video software maker ExtendMedia. The news impressed no one as HP finished down on the day and Cisco touched a new 52-week low.
Looking at the charts, 1050 did not hold on the S&P 500 and the index is now threatening to violate support at 1040. That downside move could occur as early as tomorrow if the GDP news really disappoints and it probably will. A move below 1040 could easily bring 1010-1015 into play. The 1060 area looks to be the next resistance zone.
S&P 500 Chart
Psychological support at 10,000 did not work for the Dow and the blue chip index has now plunged almost 800 points from its August 9 peak. If 9900 does not act as support the next target would be 9800. Even if the Dow can reclaim 10,000, it will have to contend with resistance at 10,100.
There is simply nothing nice to say about the Nasdaq. The index cannot even get any help from 3Par because that stock trades on the NYSE. Even it was a Nasdaq stock, it would not be enough to rewrite what is obviously a broken story. Even if the Nasdaq could string together a couple of positive days, it would bump into resistance almost immediately at 2140, but support at 2063 looks like the safer bet.
The Russell 2000 has bounced off support at 590 a couple of times, but a close just below 600 has put the index in position to retest that support level and one has to wonder how long 590 will hold. If it breaks, 550 could be the next stopping point.
Russell 2000 Chart
Betting on oversold bounces has become a fool's game at this point because the data supports the bears and the weak summertime volume makes matters worse for the bulls. A bet on a post-Labor Day bounce may prove to be a dud as well because September is another ugly month on the calendar for equities. Volume should pick up after the holiday, but the question is will sentiment?