U.S. stocks opened the week lower as the European sovereign debt situation and what appears to be an onslaught of insider trading investigations combined to keep market sentiment a bit on the negative side.  All things considered, stocks held up well though thanks to an afternoon rally.  The Dow was lower by 150 points right around lunch, rallied to close down just 25. 

Tech, consumer discretionary and utility shares were the day’s best-performing groups.  The hardest hit was financials, down seven of the past nine sessions. 

The CRB slipped for the fourth day in five as cotton, aluminum, coffee and copper weighed on that index of commodity prices.

Three major hedge funds were raided yesterday by the FBI as they crack down on insider trading allegations, specifically targeting “expert networks.”  Expert networks are essentially consultancy groups run by former securities analysts; they provide highly specialized research, for massive fees, to ultra high worth clients.  There have been claims that these former analysts receive inside information from various companies and deliver that info to large hedge funds.  The Justice Department has begun a full-blown effort to either get to the bottom of this or make an example of a number of the largest hedge funds. 

Ireland became the first Eurozone sovereign to access the EU/IMF bailout fund.   The exact specifics won’t be released until later today, but this ends the uncertainty over whether or not the Irish would accept the funds. Still, investors weren’t totally assuaged as Sinn Fein looks ready to get nasty again and companies are threatening to leave Ireland if the IMF demands they raise the corporate tax rate.  And then there’s the question of how long before Portugal taps the bailout fund? 

The big news this morning is renewed conflict on the Korean Peninsula.  There has been an exchange of artillery fire with at least a couple of civilians killed.  This is obviously putting pressure on stock-index futures this morning, but the weakness is not too bad, and overseas bourses held up very well – down about 1% in Europe and a little more than that in Asia.  This in unlikely to lead to something much larger, but there are civilian causalities so that could take things to another level.

Market Activity for November 22, 2010

Chicago Fed National Activity

The latest from the Federal Reserve Bank of Chicago’s National Activity Index showed conditions improved, but remain below trend (below trend is just the technical term for below average). 

The measure came in at a reading of -0.28 for October, following a -0.52 print for September.  This is good in the sense that the measure had printed three readings of -0.52 and below in three of the past four months – the Chicago Fed says when the three-month average hits the -0.70 mark there’s an increased likelihood the economy has slipped back into recession.  However, a reading below zero still suggest economic growth remains below trend, which means activity is insufficient to spur the level of job growth that lowers the jobless rate from extreme elevations. 

The three-month average did deteriorate to -0.46 in October from -0.33 for the previous month so there’s no doubt that economic activity remains tenuous, but the recent improvement is helpful. 

The index draws on 85 economic indicators, so it’s tough to know what helped the most.  Certainly, measures such as industrial production, weekly initial jobless claims, personal spending and the ISM manufacturing readings have helped to keep the index from further monthly deterioration.  Indicators such as housing starts, the latest uptick in the manufacturing inventory/sales ratio, the unemployment rate and real personal income less transfer payments have weighed on the reading. 

Of course, we also have this little problem of the indicators that have improved doing so because of transitory support – ie. manufacturing activity boosted by inventory rebuilding and the support to consumer spending from the stock rally and government assistance.  As a result, the figure may have a tough time advancing to levels above zero. For now though, the improvement is helpful as we’d be in big trouble if this economy slips back into even mild recession. 

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900