In Between Days

by CC August 17, 2011 12:12 am • Commentary



  • 7:00 a.m. ET: MBA mortgage-applications data. Are low rates causing a stampede to the mortgage broker’s office?
  • 8:30 a.m.: PPI for July. Economists think wholesale prices were UNCH after falling 0.4% in June.


  • 1:20 p.m.: Dallas Fed hawk Richard Fisher speaks.

Earnings: We get reports from:

  • Abercrombie & Fitch
  • Deere
  • Staples
  • Progressive
  • Target
  • JDS Uniphase
  • Limited Brands
  • NetApp



The S&P dropped at the open and fell further in first hour of the afternoon to an interim low down 1.99% from yesterday’s close. But some afternoon buying gave us a partial recovery to close down on 0.97%. Volatility increased, with the VIX up 3.17%, closing the day at 32.88. The index is in the red year-to-date, down -5.16%, which is 12.53% below the interim high set on April 29.

From an intermediate perspective, the index is 76.3% above the March 2009 closing low and 23.8% below the nominal all-time high of October 2007.


we published a report yesterday analyzing the significant rally that the market has experienced since the close last Monday, in which the average stock in the S&P 500 has gained 8.34%.  We ran our decile analysis on the S&P 500 to see which stock characteristics, if any, have contributed the most to the gains.  While the results are interesting in terms of performance based on things like PE ratios, dividend yields, and market cap, one of the most significant contributors to performance has simply been how various stocks performed when the market was going down prior to the rally.

We broke the S&P 500 into deciles (10 groups of 50 stocks each) based on stock performance from 7/22 through 8/8 (in which the average stock declined nearly 20%) and then calculated the average performance of the stocks in each decile since the close on August 8th (last Monday).  As shown below, the 50 stocks that held up the best during the period of turmoil have only gained an average of 4.8%, while the 50 stocks that declined the most during the correction are up an average of 12.8%.  Pretty much right on down the line of deciles from best to worst during the correction, performance gets better and better during the subsequent rally.  Based on this analysis, traders have simply been buying up the losers without much regard to other stock characteristics.


In what may likely be the most ambitious proposal, Mr. Sarkozy and Mrs. Merkel outlined a plan for each of the euro zone governments to enact legislation that would constitutionally bind their governments to balancing their budgets. This “golden rule” would be expected to be enshrined in the constitutions of all euro members by the middle of next year, the leaders said.

France and Germany also proposed the creation of what Mr. Sarkozy called “a true economic government for the euro zone” that would be made up of heads of state of all of the 17 nations that share the European currency. This council, he said, would meet at least twice a year and would be led by a president who would serve for a term of two and a half years. He said he and Mrs. Merkel would jointly propose that Herman van Rompuy, a Belgian and the current president of the European Union, be the first to take on this role.

“Germany and France feel absolutely obliged to strengthen the euro as our common currency and further develop it,” Mrs. Merkel said. “It is entirely clear that for this to happen, we need a stronger interplay of financial and economic policy in the euro zone.”

The summit meeting came as European stock markets were in retreat Tuesday for the first time in four days and the euro slid against the dollar following fresh economic data that showed growth in the euro area fell more than expected in the three months through June as growth in Germany came almost to a standstill.

Gross domestic product in the 17-nation euro area rose 0.2 percent in the second quarter of 2011 compared with the previous quarter, according to Eurostat, the E.U. statistics agency. Euro area growth was down from 0.8 percent in the first quarter.

G.D.P. growth in Germany, which has been the region’s economic locomotive, fell to 0.1 percent compared with the previous quarter, when the economy expanded 1.3 percent, the German Federal Statistical Office said. Analysts had expected growth of 0.5 percent.

Those gloomy statistics followed news on Friday that showed the French economy, Europe’s second-largest after Germany’s, did not grow at all in the second quarter. Slower growth means that tax receipts will also grow slowly, which will make it harder for Germany and France to support countries like Italy and Spain that are finding it increasingly difficult to borrow money at interest rates they can afford.

Greece is already in recession, while growth in Spain is slowing down more than expected this year. The Portuguese government expects the economy to contract 2.3 percent this year, compared with a previous forecast for a 2 percent decline.