Thursday, July 12, 2012
This morning's dramatically positive Jobless Claims data will
likely do little to cheer the market, as investors will likely see
it lowering the odds of further monetary stimulus from the Fed in
the coming days. The overall backdrop for the market has been
steadily weakening in recent weeks, be it the domestic economic
outlook, the corporate earnings scene or the international growth
environment. And many have been looking towards the Fed to come
back to the market's rescue.
The market didn't seem to be sufficiently impressed with
Wednesday's Fed minutes, but the overall tone coming through the
minutes is of a central bank ready to take more action. While the
committee did not announce a new round of bond purchases and
decided instead to extend Operation Twist, 'several members' did
acknowledge the need for more policy stimulus should the recovery
lose momentum.
Notwithstanding this morning's surprisingly positive Jobless Claims
reading, the overall trend line of economic reports has lately been
on the weaker side. And by the time the FOMC meets again in August,
we will have the July non-farm payroll report and the second
quarter GDP reading available. The GDP report will most likely show
quarterly growth less than the first quarter's 1.9% pace. I would
think that the possibility of a QE announcement in the August
meeting will increase significantly if the July jobs reports is
along the same lines as the last few readings. But this morning's
initial Jobless Claims reading runs to counter to the
economy-is-losing-momentum narrative and could change the tone of
market discourse if sustained over the next few weeks.
The initial Jobless Claims report is very positive as it reverses
the stalling trend of the last few weeks. Initial Claims dropped
26K last week to 350K, the lowest level in more than three years.
The four-week average, which smoothes out the week-to-week
volatility, dropped by 9.8 to 376K. Jobless Claims at this level
would be consistent with monthly job gains much better than what we
have been seeing in the last few months. The key would be whether
today's report is a one-off reading or the start of something more
enduring.
On the earnings front, industrial supplier
Fastenal (
FAST
) beat EPS by a penny, though it came modestly short of revenue
expectations. Shares of
Supervalu (
SVU
) will be in the spotlight today as the grocery-store operator not
only reported weaker than expected results, but also announced
suspension of its dividend and withdrawal of its full year
guidance.
Sheraz Mian
Director of Research
FASTENAL (FAST): Free Stock Analysis Report
SUPERVALU INC (SVU): Free Stock Analysis Report
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