We’ll see exactly what the fear level is today when U.S. stocks get a chance to react to this morning’s revision of first quarter U.S. GDP growth.
Economists had projected that the Bureau of Economic Analysis would raise its estimate on first quarter GDP on its first regular review of the initial numbers to 3.3% from 3.2%. The Bureau, however, actually lowered the estimate for U.S. growth to 3% for the quarter.
Now granted this is all backward looking. The real worries are about future economic growth—that is Will the U.S. economy slow in the second and third quarters of 2010? First quarter numbers, even revised first quarter numbers, are old news.
But still today’s headline number shows that the economy was weaker than thought. If investors are really twitchy that would be enough to set of selling, especially in front of the long Memorial Day weekend.
My suspicion?
 The GDP revision will get overshadowed by reassuring remarks from China this morning that the country isn’t selling euros.
That’s put European stocks in a good mood and that’s likely to start the U.S. market in a positive path too.
Seaturtlelady – beta is a measure of the relative movement of an individual stock compared with its index or the market; “high beta”, as r.halvorsen, stated means the stock moves more than the market – that is, it displays higher volatility (more up/down movement) – AND means that the stock is “riskier” (risk traditionally being defined as less predictability. Hedge funds and other “smart” money has moved away from high-beta toward more stable dividend-yielding stocks (like JJ’s recent advice). Thus, a contrarian bet would be to buy high-beta here.
I am kind of agree wit USDAPortfolio on sector rotation. I am thinking the strategy of buying the broad market index instead of sector or individual stocks.
Yes, this revision to 1st quarter GDP is old news, especially since the revisions to March’s durable goods orders (which came out yesterday) showed a revision from down 1.3% to unchanged, with the ex-Transportation numbers being revised from up 2.8% to up 4.8%. http://www.dailymarkets.com/stocks/2010/05/26/noisy-durable-goods/
STL
“high-beta” means stocks that that have a high volatility compared with the S&P. For example, TC, a cyclical, has a beta of 2.92, while ETP has a beta of 0.49.
I forget who posted what, when; but seems to me news at home is taking a back seat. The fact that China “says” it’s not selling Euro debt is exactly what investors wanted to hear. News flash, however: The cancer is still there…not going away…any, and I mean any news that lessens the pain and causes a degree of amnesia that the problem is still there, will cause a bounce. Let anyone shout “boo” in a room where investors do their thing…down she’ll go again and again and again…just from startled fear!
USAportfolio…
What are some undervalued stocks? How can I find that information??
Rolfer1…
I don’t understand your “high-beta” comment, do you mind elaborating??
Thanks a bunch!
Jim, right on, as usual. If we close above 1085 tomorrow, your thesis of S&P 1220 appears solid. The so-called “smart money” investors are quite bearish right now – a solid contrarian signal IMHO – and are selling liquid large-cap stocks to raise cash. I’d look for a steep upturn, as I anticipated a sharp downturn, when fear gives way to greed.
USDAportfolio – yes, sector rotation into “safe” high-yielding stocks has been ocurring and is typical. But, I’d look for high-beta to run strongly when sentiment turns.
Jim,
Personally, I think the M3 money supply dropping is bigger news. With all the money the Fed has already pumped into the economy, and the money supply continues to drop? That tells me the deflationary pressure is far too strong for the Fed to deal with.
Jim,
From what I can tell, the recent market decline can be attributed to typical sector rotation. Several sectors and individual stocks have become overheated as hot money chased them up since the March 2009 bottom. Other sectors and individual stocks have underperformed and look attractive.
Investors are reducing risk by taking profits in companies whose market cap has grown too high for fundamental support. Profits are being taken from those overheated stocks / sectors in an effort to raise cash for deployment into undervalued sectors with less risk.
This is typical action during any bull market. Looking at the S&P500 chart after recessions dating back to 1970, markets tend to pull back to breach their 200 day moving average within 10-16 months after the bottom, and remain range bound as the overvalued stocks deflate and money flows into undervalued stocks.
I’d be interested to hear your latest thoughts on where we stand in terms of sector rotation.
I agree, but the over all mood is super shaky. Many investors who went long at 10500 and higher are looking to raise cash on any good bounce (which I think is a pretty good idea)