ADVISORY SQUAWK BOX – WEEKLY HIGHLIGHTS (Week of September 17th, 2012)

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Squawk Box Topics (Week of September 17th, 2012)

Broader Market Recap & Previous Week Re-Cap:

  • Monday (9/10) – Wall Street fell as investors locked in gains on a recent rally ahead of possible policy action from the Federal Reserve later this week, while weakness in Intel shares weighed on the Nasdaq. (S&P 500 -0.6%)
  • Tuesday (9/11) – The Dow industrials closed at its highest level in nearly five years in another lightly traded session ahead of key decisions in Germany and the U.S. that could give markets a further boost. (S&P 500 +0.3%)
  • Wednesday (9/12) – Wall Street closed little changed, erasing early gains, in reaction to an encouraging ruling by Germany’s high court on the legality of the Euro-Zone bailout fund, as investors turned cautious ahead of a Federal Reserve decision on another round of monetary stimulus to boost the economy. (S&P 500 +0.2%)
  • Thursday (9/13) – The S&P 500 closed at its highest level since December 2007 after the Federal Reserve’s aggressive QE3 action to bolster the economy encouraged investors to dive back into the market. (S&P 500 +1.6%)
  • Friday (9/14) – Stocks rose for a fourth straight session to close out the week at nearly five-year highs after the Federal Reserve took bold action to spur the economy, a move that could keep equities buoyed in the coming months. (S&P 500 +0.4%)
  • For the previous week, the DJIA finished higher by 2.2%, the S&P 500 added 1.9% while the NASDAQ closed up 1.5%.
  • To begin the current week, the S&P 500 is up approx. 16.6% in the year-to-date period.

Technical Update:

  • On 9/13/12, the S&P 500 finally made a move through the significant 1,440 resistance level in reaction to the Fed’s aggressive QE3 announcement.  As a result of this technical break-out, the chart watchers appear to have reversed course & turned pretty bullish with little upside resistance on the charts until the 1,470 level, which is roughly where we peaked out last week (1,474 – last week’s intra-day high & last hit in December 2007).  Hence, I suspect that most short-term technical traders will begin to take some money off the table at this 1,470 resistance mark and possibly look to initiate some shorts, in anticipation of a near-term pullback.  However, due to the strength of the market’s latest run to the upside, I suspect these shorts will be trailed by very tight stops to keep potential losses at a minimum.  To begin the latest week, the S&P 500 has opened up around the 1,465 level.
  • Key Technical Levels (S&P 500): On the upside (resistance) – 1,471, 1,500, 1,523 & 1,545 are the next major levels in range on the charts.
  • On the downside (support) – 1,460, 1,440, 1,426, 1,415, 1,405 & 1,400 are the major marks in range on the charts (50-day moving avg. = 1,402; 200-day moving avg. = 1,354).

 Economic Data:

  • We are scheduled for a fairly notable week on the economic data front, highlighted by Wednesday’s numerous housing reports as well as Thursday’s weekly jobless claims data.  See below for full list of weekly economic reports.

 Corporate Earnings:

  • U.S. corporate earnings begin to pick up this week with a handful of market moving reports scheduled for release, highlighted by FedEx on Tuesday morning and Oracle on Thursday after the close.  See below for breakdown of major earnings announcements scheduled for release.              
  • Crude Oil:
  • To begin the week, NYMEX WTI Crude Oil is still trading just below the $100 a barrel level & Brent Crude is still trading just over $116 a barrel.  Since June 29th, 2012, NYMEX WTI Crude Oil is up approx. 17% while Brent Crude is up approx. 20%.

 ESM ratification by Germany

  • All eyes turn to Spain and its bailout needs
  • Open-ended QE here in the U.S., but treasuries fall

 Asset Manager Fund-Flow Updates (Week Ending Sept. 12th):

  • Equity Funds (excluding ETFs) saw $1.7BN of net outflows vs. $1.6BN of net outflows from the prior week.
  • Domestic equity funds saw $1.5BN in net outflows, which was the same as the previous week.
  • Global equity funds saw $200MN of net outflows compared to $100MN of net outflows from the prior week.
  • Excluding ETFs, Financials emerged as the strongest sector, while flows within the Real Estate sector were the weakest.
  • Including ETFs, the Energy and Industrial/Consumer sectors emerged as the best performers, but most of the other major sectors saw net inflows. The Utilities sector was the lone sector that saw equity out-flows.
  • The latest Lipper data showed that BlackRock Fund, State Street Global Advisors and Touchstone Advisors displayed the largest equity inflows. While there were no significant equity outflows among the major Mutual Fund managers, Columbia Funds displayed net equity outflows of roughly $500MN.
  • Weekly asset manager fund returns rebounded from the previous week and were upby an average of 1.91% (+4.72% YTD)
  • Lazard and Morgan Stanley emerged as the best performers
  • Emerging Trends/Topics:
  • Portfolio Positioning- With the latest QE3 action, Asset Managers likely will remain in “repository trade” to play the recent reflation actions proposed by the Fed. In turn, Asset Managers likely will remain better diversified in fixed income, alternative/hybrid types of funds and non-US diversification type funds
  • Continuation of Risk-On/Risk Off to continue- This will keep it difficult for equities to gain traction
  • US Equity Redemptions driven by Active Funds and ETF outflows: Domestic ETFs posted net redemptions of $4.3BN last month. In contrast, Index funds saw $2.6BN of net inflows.
  • Janus continues to struggle in equity markets- Janus posted net outflows of $720MN in its equity holdings-with $572MN of outflows for Mid Cap Val and Overseas fund
  • S&P Quarterly Rebalance: Taking effect this Friday (9/21). S&P Global 100 Index among the notable indices seeing changes occur

_________

MAIN EVENTS OF THE WEEK

MONDAY (9/17)

– 8:30 AM ET – NY Fed Empire Manufacturing – Sep – Expectations = -3

– U.S. market activity could be lighter than usual as the Jewish New Year is celebrated

– Markets in Japan & Israel are closed

TUESDAY (9/18)

– 8:30 AM ET – Current Account Balance – Q2 – Expectations = -$126.8B

– 10:00 AM ET – NAHB Housing Market Index – Sep – Expectations = 38

– New York Fed President William Dudley speaks about regional and national economic conditions. In the evening, hawkish Richmond Fed President Jeffrey Lacker speaks about Maximum Employment and Monetary Policy.

– FedEx Earnings – BMO

WEDNESDAY (9/19)

– 8:30 AM ET – Housing Starts – Aug – Expectations = 770K

– 8:30 AM ET – Building Permits – Aug – Expectations = 800K

– 10:00 AM ET – Existing Home Sales – Aug – Expectations = 4.58M

– AutoZone Earnings – BMO

– General Mills Earnings – BMO

– Bed Bath & Beyond Earnings – AMC

THURSDAY (9/20)

– 8:30 AM ET – Weekly Initial Jobless Claims – Expectations = 375K          

– 10:00 AM ET – Philadelphia Fed – Sep – Expectations = -4           

– 10:00 AM ET – Leading Indicators- Aug – Expectations = 0.00% 

– Bank of Japan Policy Meeting – Some observers are betting the Bank of Japan will announce its own QE when its policy meeting ends

– Oracle Corp. Earnings – AMC

FRIDAY (9/21)

– UnitedHealth Group replaces Kraft Foods in the Dow Jones Industrial Average after the market closes

– Japan’s ruling Democratic Party holds its leadership election

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