Intraday Market Update
The S&P 500 futures in the overnight session were volatile, trading in a 17 point range. After the bell yesterday the futures sold off -12 points on the heels of Cisco's earnings and comments from their CEO John Chambers. The futures bounced to recover all of those losses and briefly peeked into positive territory at 4:00 AM. But the selling quickly resumed and was exacerbated following an unexpected increase in US jobless claims which hit their highest level in 5 months. The S&P 500 gapped -15 points lower but quickly reversed +10 points paring a large portion of the early losses. All of the major indexes are still in the red and are nearing yesterday's lows which could act as resistance. The Russell 200 is faring the best and is almost breakeven. Overseas, the Asia-Pacific region sold off in the midst of another round of uninspiring economic reports. Japan's Nikkei Index was down -3% before recovering 2% of those losses. Europe was mostly lower with the exception of London's FTSE which gained +0.40%.

The outlook for the August employment report scheduled for release on September 3rd is off to a terrible start. Initial jobless claims rose to 484,000 which was significantly above estimates calling for 460,000. This is the highest level since February. The four-week average has moved up to 473,500 which is also highest since February. One positive in the report is continuing claims fell -118,000 which moves the four-week average down -64,000 to 4.519 million. While the decline in continuing claims is positive they do reflect the expiration of benefits as unemployed workers simply fall out of the insured labor pool.

This morning's Import and Export Prices report is sure to stoke the deflation argument, or at least disinflation. Although import prices rose +0.2% in July they reflect a +2.1% rise in fuel. When you exclude fuel prices import prices fell -0.3% which follows June's -0.5% decline. Export prices fell -0.2% in July with declines posted in most components. This follows a -0.7% drop in June. This report could point to weakness in tomorrow's CPI report and Tuesday's PPI report.

Meanwhile, PIMCO's CEO and co-CIO Mohamed El-Erian made the rounds citing that the recent export data and the FOMC's statement this week are confirming that the US economy is slowing. He warned that the prospect of deflation was unsettling the markets and he believes that there will be more downward revisions to growth and revenue forecasts among various analysts. He also expects the markets to remain nervous and volatile in the weeks ahead.

In equities, General Motors reported its second consecutive quarterly profit. GM earned $1.3 billion in its Q2, up from $865 million in Q1, and up from a -$13 billion shortfall last year. This is its best quarterly profit since 2004. However, on the conference call executives warned profits might not be as strong in the second half of the year as in the first half. Reuters reported that the GM has secured a $5 billion credit facility which clears the way for an IPO, while CNBC reported that the company is expected to file for the IPO on Friday. GM has not confirmed the reports.

Cisco (CSCO) is off nearly -10% after their lackluster earning's report after the bell yesterday. On the conference call Cisco's revenue outlook was below the consensus estimates, and CEO John Chambers warned that the company is seeing mixed signals from customers with business softening in June and July. However, Chambers also said that order growth returned to very strong levels in late July.

Kohl's (KHH) is off -3% after meeting earnings estimates, however, the firm lowered its guidance. Kohl's said on the conference call that August comps are below the quarterly average so far. Restaurant names Wendy's (WEN) and Brinker International (EAT) missed earnings estimates in their quarterly reports. WEN cut its profit guidance due to a "challenging economic environment," while EAT warned that their comps next year would be challenging. Nonetheless, EAT has gained +5% while WEN is about breakeven. Shares of Estee Lauder (EL) were off -9% after they missed earnings estimates and offered weak guidance, but the stock has recovered and is down -4%.

Core Sector List:
Overall reading: 7 sectors advancing, 12 sectors declining
Strongest Sectors: Gold Miners, Biotechnology, Coal
Weakest Sectors: Internet, Software, Home Construction


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