Financials were in the middle of the pack yesterday, but have gotten clocked over the past six weeks -- as well they should have as the early-year run up was a joke, a move without any merit whatsoever in my opinion.  The group was the year’s best-performing sector at (up 22.9%) as of early April when the broad market topped out.  Now that gain has been trimmed to just 6.6% and it wouldn’t surprise me to it end the year as the worst-performing sector – which would make it two years in a row.

On the Euro scene, most of those major stock indices bounced from last week’s drubbing.  The Spanish and Italian markets were the odd ones out as Spain fell deeper below the 2009 low and Italy within 3% of that mark.  The latest rumbling was that Greece won’t be the first country to leave the zone, but Germany.  No one should take such talk in the least bit serious though as that would be beyond catastrophic for everyone – but for sure the Germans are extremely fed up with this whole experiment.  There is one thing that should be taken seriously.  While Germany is fiscally fit and economically strong (for a European country), they are not big enough to bail the entire euro zone out of its social-entitlement road to collapse.  They need France to make any resuscitation even remotely possible, and they lost Paris with the election of the full-blown socialist Francois Hollande.

On the Asian scene, the economic landing in China appears to be harder than expected – apparent by reported declines in steel and cement imports (and default rates on payments for those shipments), not so much by the GDP numbers, but as I’ve said, you can’t trust numbers that come from a Communist government.   The weakening has prompted Chinese Premier Wen to pledge more growth, which means lending and bank reserve requirement will be loosened, and probably dramatically.  Although, we’ve seen this game before and all it leads to is another round of weakness and then yet further easing.  However, previous implementations of Chinese easing (or Cheasing) had helped the U.S. stock market rebound, which is pretty much the reason I bring the whole discussion up.

Market Activity for May 21, 2012

Sector Activity for May 21, 2012

CFNAI

Well, we’ve seen economic data take quite the header over the past 2-3 months, and it hasn’t just been numbers missing expectations but some of the data series are outright ugly (the latest being the trade gap, durable goods orders, the weekly confidence gauge and of course payroll growth).  Yesterday morning we found that the Chicago Fed’s National Activity Index (which is based on 85 different economic indicators) pretty much extended this trend.

There is no estimate for this figure, so nothing to match it against in that regard, but the 0.11 print is a weak one and it comes off of a big downward revision for March – printing -0.44 instead of the -0.29 initially reported.

The results sent the three-month average back to negative territory, falling to -0.06 from the +0.02 as of March and the +0.38 as of February.

Now, the current three-month average is well above the -0.70 mark that is meant to signal the economy has fallen back into recession.  However, the latest dip suggests we have weakened and are likely right back in that extremely tepid level of 1.5% GDP growth.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900