A decidedly weak set of domestic economic data and concerns
about budgetary developments in Spain provide the backdrop for
today's trading action. While market sentiment ahead of the open
was on the positive side, it may be hard to sustain the gains given
this uncertain news flow. The trading action of the last few days
suggests that Investors are stepping back from these day-to-day
developments to get a sense of big picture. Next week's economic
releases promise to provide useful clues about that big picture,
but it will most likely be the coming third quarter earnings season
that will provide the definitive directional nudge to this market.
We will find later today how decisive and determined the Spanish
authorities are in tackling the country's fiscal situation in the
face of widespread public protests. A credible budget plan coupled
with decisive structural reforms will likely be reassuring enough
for the Euro-zone authorities to back-stop the country's finances.
Watch for comments from the Euro-zone officials about the details
that Spain announces today.
The overall tone of economic releases on the home front was
decidedly weak this morning, with the final read on the second
quarter GDP and monthly Durable Goods coming in weaker than
expected, while the weekly initial Jobless Claims data coming in
better than expected. The GDP revision may not carry that much
punch as it was the third look on that reading, but the Durable
Goods drop is definitely something to worry about as it raises
doubts about the outlook for corporate capital spending. Granted
the headline drop pertained primarily to lower aircraft deliveries
from Being (BA), but even the 'core' measure that strips out the
transportation components fell for the third straight month.
What this tells us that even though consumer confidence may be
improving lately as shown by the Conference Board and University of
Michigan measures, business confidence seems to be waning. Hard to
tell whether it reflects the advance effects of the looming 'Fiscal
Cliff' or something else, but it's definitely something to keep an
eye on. We will get the first look at the third quarter GDP report
in about a month, though next week's data on jobs and the ISM
indexes will set the tone for the broader economic discussion.
On the earnings front, we got a better than expected report from
Discover Financial (DFS). Nike (NKE) and Research In Motion (RIMM),
the maker of blackberry, will report after the close today.
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