WSJ: 2006 401K Law Supresses Saving for Retirement

Hmmm, some interesting unintended consequences of a law passed in 2006 which one would think would have increased savings. 

The study shows while more people are participating, those who are automatically enrolled due so at the company set rate, which is below what people who enroll on their own normally do.  Hence inertia is an issue.    I'd also argue one potential issue is the timing of the law - it happened just before the beginning of the Great Recession so far fewer people have jobs (and hence 401ks), and those who do retain employment don't have the house ATM to utilize as their secondary piggy bank - hence have less for retirement savings.  But plain inertia might be the primary cause.

Via WSJ:

• A 2006 law designed to boost employees' retirement-savings is having the opposite effect for some people.   Under the law, companies are allowed to automatically enroll workers in their 401(k) plans, rather than require employees to sign up on their own. The measure was intended to encourage more people to bulk up their retirement nest eggs—a key goal in a country where millions of people aren't saving enough.
• But an analysis done for The Wall Street Journal shows about 40% of new hires at companies with automatic enrollments are socking away less money than they would if left to enroll voluntarily, the Employee Benefit Research Institute found. The nonprofit performed a complex computer simulation of savings patterns drawing on data from more than 20 million 401(k) participants.
• The problem: More than two-thirds of companies set contribution rates at 3% of salary or less, unless an employee chooses otherwise. That's far below the 5% to 10% rates participants typically elect when left to their own devices, the researchers said.
• "Automatic enrollment is a double-edged sword," said Brigitte Madrian, a professor at Harvard University who is an expert on 401(k)s. "On the one hand, there's more participation. On the other hand, lots of employees are stuck at whatever default the employer selects." 
• The total annual amount being put into 401(k) plans has increased by 13% since 2006, to an estimated $284.5 billion this year, according to consulting firm Cerulli Associates. That is largely because the rule has successfully prodded millions of people who wouldn't have saved a penny for retirement to start saving something. 

[click to enlarge]

• EBRI evaluated the contribution rates of people of similar ages and salary levels eligible for 401(k) plans with automatic enrollment versus those in plans that require workers to join voluntarily, examining data stretching back 11 years. To project future savings patterns among auto-enrolled participants, EBRI ran a computer simulation based on a variety of scenarios concerning wage growth and the adoption of higher contribution rates over time.
• Simple inertia takes over for many workers, said Kristi Mitchem, head of the global defined-contribution business at State Street Global Advisors, which manages more than $297 billion in 401(k) plans.
• The Pension Protection Act of 2006, which was designed to shore up the pension system, also encouraged wider adoption of auto-enrollment in 401(k) plans. It removed obstacles such as state laws that restricted the practice and shielded employers who use certain types of investments from liability for losses suffered by participants who are auto-enrolled.
• The law has boosted auto-enrollment and participation rates dramatically. About 57% of large companies now automatically enroll new employees in 401(k) plans, up from 24% in 2006, according to Aon Hewitt. While employees are free to opt out, companies report average participation rates above 85%, compared with 67% for those without auto-enrollment, Aon Hewitt says.
• Yet 401(k) participants' average savings rates have fallen in recent years. Among plans Aon Hewitt administers, the average contribution rate declined to 7.3% in 2010, from 7.9% in 2006. The Vanguard Group Inc. says average contribution rates at its plans fell to 6.8% in 2010, from 7.3% in 2006. Over the same period, the average for Fidelity Investments' defined contribution plans decreased to 8.2%, from 8.9%.  Vanguard estimates about half the decline "was attributable to increased adoption of auto-enrollment."
• Many companies said they selected a 3% default contribution rate in part out of concern that a higher rate could prompt employees to drop out of these plans.  
• Another factor may be pushing down default rates: Some companies that match some employee contributions can save money with a lower default rate. According to a 2011 Aon Hewitt survey, 73% of employers without auto-enrollment cite "the increased cost of the employer match as a primary barrier" to adopting it this year.

Getting Feverish

Again - astounding change in market psychology in just a week and a half.  This is yet another V shape bounce and we now have to consider if this is the new market behavior.  With HFT trading and momo actors dominating the market, it seems once we take off in 1 direction there is really no relent.  V shape has been almost the only shape since early 2009...

As a few people have noted in comments, the saying used to be a stairway up, and elevator down in markets.  But the past few few years it is elevator up action as well.

That said, we're getting to overbought conditions and any sort of gap up tomorrow morning into the labor report would present a juicy opportunity for a (very) short term pullback.   The S&P 500 is up some 85 points in a week and a half (nearly 7%), and stands 3.2% over the 20 day moving average.  That's usually a level the rubber band tends to snap back.  Hence a gap up tomorrow morning of 0.5%+ish would be prone for selling into/shorting.  Plus we have yearly highs at 1370.

A lot of individual names (we all know the symbols of these 20-25 stocks by now) are well into overbought but you just cant stand in front of momo trains once everyone piles into because overbought is simply a state of mind once the lemmings are unleashed.

A premarket selloff on tomorrow's employment data would be more tricky in the near term.

Obama to Extend Forebearance for Unemployed in HAMP Program from Minimum of 3 Months to a Minimum of Year

I think this is the fourth year of special programs to 'fix' the housing issue.... the latest being leaked this morning per HousingWire.

• The Federal Housing Administration and the Treasury Department will require mortgage servicers to extend the forbearance period for unemployed homeowners to one full year.  The Treasury will require servicers participating in the Home Affordable Modification Program's unemployment initiative to extend the minimum forbearance period from three months to of 12.  (please note these are minimums)
• The Obama administration also said Thursday it would remove "upfront hurdles" to the FHA Special Forbearance Program, which previously provided a four-month forbearance, to make it easier for unemployed borrowers to qualify.  Borrowers participating in the HAMP Unemployment Program, or UP, will be able to obtain a forbearance if they are seriously delinquent.
• "The current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers," said Department of Housing and Urban Development Secretary Shaun Donovan. "Today, 60% of the unemployed have been out of work for more than three months and 45% have been out of work for more than six. Providing the option for a year of forbearance will give struggling homeowners a substantially greater chance of finding employment before they lose their home." 

The majority of these programs are simply extending and pretending, kick the can policies which seem to be the answer to every major global financial problem.

On that note, the ECB announced this morning that Portugal could dump whatever grade of debt onto the bank - just as it had done with Greece.  Ireland cannot be far behind.  They have finally learned from the US Fed - if no one else will buy the crap, take it inside the central bank.

[Video] ECRI's Achuthan Sticking to Script that Economic Slowdown is not Transitory

I mentioned in mid June how the ECRI had turned bearish on economic prospects in the intermediate to longer term [Jun 14, 2011: [Video] ECRI's Achuthan - Prolonged US Slowdown Underway] and this morning on CNBC co-founder Lakshman Achuthan is sticking to his guns despite an 'uptick' in economic data the past week or so.  Indeed, he is calling for the slowdown to continue through 'at least' the end of the year, if not longer.  This now puts him in the minority, as the opposing guest in the segment below now portrays the growing consensus on Wall Street.  (and what Mr. Zandi was offering yesterday)  One key point Achuthan makes, which I pointed out as well, was all the manufacturing economic data released globally last week was degrading except for the ISM in the U.S. - but markets only focused on that one figure and ignored everything else. 

It will be very interesting to see how this call works out, because the ECRI has been probably the best caller of economic turns the past few years, if not longer.

9 minute video but for the most part just focus on Achuthan since the other guest is repeating what 99 out of 100 guests are saying on CNBC.

ADP Surprises to the Upside at 157,000 Offsetting Previous Month's Dreary Data

The ADP report came in at 157,000 this morning, ahead of expectations.  Averaging this data with the really weak May data (a revised +36,000) and you get just under 100,000 private sector jobs created on average the past two months.  Not enough to bring down the unemployment rate, but in the very short term focused world of the stock market every data point is celebrated or booed in a vacuum.  This should raise expectations slightly for tomorrow's government data.

Goods producing came in at +27,000; service producing +130,000.

[full report here]

In central bank news the ECB raises rated a quarter  point as expected while BOE kept rates flat as expected.

We remain in party on mode in the market.

[Video] Mark Zandi - 'We're Going to Reaccelerate'

Economist Mark Zandi is definitely in the Wall Street crowd with the belief the worst is behind us, and we soon have the second half bounce, due to supply chain fixes in Japan and a generally better environment.  That said the consensus was calling for 4%+ type of GDP in Q1 and Q2, due to the Bush tax extensions and 2% payroll tax holiday, so we'll see if they get it correct this time around.

5 minute video

"We've seen the bulk of the slowdown….I think we're going to reaccelerate," he says.  Whereas most economists, including at the Fed and IMF, now expect second half growth below 3%, Zandi predicts the U.S. economy will rebound to close to 3% growth in the third quarter and approach 4% in the fourth.

Zandi's optimism is based on a view that the first half slowdown was due mainly to rising energy prices and the dramatic downturn in Japan's economy following the devastating earthquake and Tsunami last March.  "Those weights are lifting," he says. "The Japanese economy seems to be gaining traction, [that] augurs well for our manufacturing" sector.

To be sure, Zandi is predicting a robust, V-shaped rebound and predicts the job market will remain soft, predicting "another month or two of soft payrolls, around 100,000." (The consensus for Friday's June payroll report is 110,000.)  Zandi predicts the headline non-farm payroll figure will start to hit 200,000 per month later this year and the unemployment rate will "head toward" 8% by the end of 2012.

First Trust Launches Cloud Computing ETF (SKYY)

It is always interesting to see if new ETFs, in a very highly saturated marketplace, catch any attention or more importantly a sizable amount of assets.  First Trust is trying to catch the cloud computing angle, with a new ETF: First Trust ISE Cloud Computing Index Fund (SKYY).  As long time readers know, a lot of companies we've been interested have seen a premium attached to them over the past 24 months or so once they become 'cloud' plays.  [Feb 11, 2010: WSJ - What the Heck is this Cloud Computing Thing?]  But they do tend to move in a group once heralded as a 'cloud' company.  More importantly, one wonders in a market with ADD if cloud matters anymore, as the lemmings have moved on to 'social media' as the new hot thing.


Anyhow here is a link to the ETF's webpage, and some description below.  Looks to be 40 companies, with no one-two positions dominating the holdings as many top heavy ETFs have.  A 0.6% expense ratio. I also have a video below with one of the salesmen from First Trust on the launch and product.

The index is a modified equal dollar weighted index designed to track the performance of companies actively involved in the cloud computing industry. To be included in the index, a security must be engaged in a business activity supporting or utilizing the cloud computing space, listed on an index-eligible global stock exchange and have a market capitalization of at least $100 million.

All securities are then classified according to the following three business segments:

• Pure Play Cloud Computing Companies: Companies that are direct service providers for “the cloud” (network hardware/software, storage, cloud computing services) or companies that deliver goods and services that utilize cloud computing technology.
• Non Pure Play Cloud Computing Companies: Companies that focus outside the cloud computing space but provide goods and services in support of the cloud computing space.
• Technology Conglomerate Cloud Computing Companies: Large broad-based companies that indirectly utilize or support the use of cloud computing technology. 

Here are the positions over 1% exposure.
Aruba Networks, Inc. ARUN 3.78 %
TIBCO Software Inc. TIBX 3.77 %
Teradata Corporation TDC 3.67 %
Amazon.com, Inc. AMZN 3.62 %
Informatica Corporation INFA 3.54 %
Netflix Inc. NFLX 3.53 %
Blackboard Inc. BBBB 3.49 %
Salesforce.com, Inc. CRM 3.47 %
NetApp Inc. NTAP 3.47 %
Open Text Corporation OTEX 3.47 %
Rackspace Hosting, Inc. RAX 3.46 %
Acme Packet, Inc. APKT 3.46 %
VMware, Inc. VMW 3.43 %
F5 Networks, Inc. FFIV 3.40 %
Oracle Corporation ORCL 3.35 %
Equinix, Inc. EQIX 3.35 %
EMC Corporation EMC 3.34 %
Akamai Technologies, Inc. AKAM 3.34 %
Rightnow Technologies, Inc. RNOW 3.31 %
Cisco Systems, Inc. CSCO 3.27 %
Google Inc. GOOG 3.27 %
Juniper Networks, Inc. JNPR 3.26 %
SAP AG (ADR) SAP 3.22 %
Microsoft Corporation MSFT 2.54 %
International Business Machines Corporation IBM 2.49 %
Apple Inc. AAPL 2.46 %
Hewlett-Packard Company HPQ 2.39 %


4 minute video



No position

ISM Non Manufacutiring Slightly Below Expectation at 53.3

While the ISM Manufacturing seems to get all the attention, we've shrunk that part of the economy to a quite small proportion of activity.  Most of the action nowadays is in the services sector, and hence today's ISM number is more applicable to the broader economy.  The reading of 53.3 is still expansionary but the second worst reading in 2011.  A bit below consensus as well, but thus far the market doesn't care as it continues to look forward to the Japan supply chain rebuild and hopes for 3%+ type of GDP in Q3/Q4.  As well as the very healthy outlook for corporations, especially the multinational kind which have increasingly less need for a healthy U.S. economy.

Specific to the ISM report, new orders shrunk relatively dramatically, and employment was flattish.  As with ISM Manufacturing the bright spot is a large drop in prices.

WHAT RESPONDENTS ARE SAYING ...

• "Business is still up, although some softening seen over last month." (Wholesale Trade)
• "Orders are remaining steady, and outlook for this year is positive." (Professional, Scientific & Technical Services)
• "Economic activity continues to be sluggish." (Management of Companies & Support Services)
• "Have yet to see a real spark that ignites new and invigorated business — still seems lethargic and mired in recession-related preventative moves, and no one sees a real improvement ahead." (Public Administration)
• "Commodities coming down in price, which should help stabilize inflation." (Retail Trade)

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS* JUNE 2011
	Non-Manufacturing						Manufacturing
Index	Series Index Jun	Series Index May	Percent Point Change	Direction	Rate of Change	Trend** (Months)	Series Index Jun	Series Index May	Percent Point Change
NMI/PMI	53.3	54.6	-1.3	Growing	Slower	19	55.3	53.5	+1.8
Business Activity/Production	53.4	53.6	-0.2	Growing	Slower	23	54.5	54.0	+0.5
New Orders	53.6	56.8	-3.2	Growing	Slower	23	51.6	51.0	+0.6
Employment	54.1	54.0	+0.1	Growing	Faster	10	59.9	58.2	+1.7
Supplier Deliveries	52.0	54.0	-2.0	Slowing	Slower	15	56.3	55.7	+0.6
Inventories	53.5	55.0	-1.5	Growing	Slower	5	54.1	48.7	+5.4
Prices	60.9	69.6	-8.7	Increasing	Slower	23	68.0	76.5	-8.5
Backlog of Orders	48.5	55.0	-6.5	Contracting	From Growing	1	49.0	50.5	-1.5
New Export Orders	57.0	57.0	0.0	Growing	Same	10	53.5	55.0	-1.5
Imports	46.5	50.5	-4.0	Contracting	From Growing	1	51.0	54.5	-3.5
Inventory Sentiment	58.5	55.0	+3.5	Too High	Faster	169	N/A	N/A	N/A
Customers' Inventories	N/A	N/A	N/A	N/A	N/A	N/A	47.0	39.5	+7.5

* Non-Manufacturing ISM Report On Business^® data is seasonally adjus

Average Hedge Fund Down on Year

Some interesting data in this Reuters report - most notably that the average hedge fund (via data from Hedge Fund Research) is down 2.1%, trailing the S&P 500 by some 8%. If not for the furious rally in the closing 4 sessions of June, I would imagine that gulf would be much smaller.

• The first half of 2011 has been humbling for many of the $2 trillion hedge fund industry's biggest stars, with the likes of John Paulson, David Einhorn, and Louis Bacon losing money for their investors' money while underperforming the major U.S. stock market indexes.
• At the year's half-way point, the average hedge fund was off 2.12 percent, preliminary data from Hedge Fund Research show. By contrast, the Standard & Poor's 500 gained 6 percent. 
• Only six months ago, few investors would have forecast that as of June 30, Paulson's flagship Advantage Fund would have lost 15 percent, or Einhorn's Greenlight Capital would be down 5 percent. Even Louis Bacon's flagship Moore Global fund, which has boasted average annual returns of 19 percent for more than two decades, was down 5 percent for the year through June 16.
• The lackluster performances from so many top managers come at a time when the hedge fund industry is perceived to be roaring back to life following the financial crisis.  In the first quarter of 2011 alone, hedge funds took in $32 billion in new money from pension funds and other institutional investors, more than half the amount added during the entire year of 2010. Thanks to fresh demand, especially from pension funds, the industry now manages more money than it did before the beginning of the crisis during the summer of 2007.
• "The glory boys have had a tough time lately," said Charles Gradante, co-founder of Hennessee Group, which invests with funds and tracks industry performance.  Poor performance is sparking worry that unless these managers turn things around soon, some of the industry's biggest names will be hit with redemption notices in the second half of the year. A wave of requests from investors to get some, if not all, of their money back could force some managers to quickly liquidate positions to return cash fast.
• William Ackman, whose Pershing Square Capital has delivered an average annual gain of 19 percent until now and is often down early in the year, was off 2.27 percent during the first first 5-1/2 months of the year. 
• Digging into the mid-year numbers, it appears many funds were fairing poorly thanks to one brutal month. Overall, funds were down 2.09 percent in June, marking their biggest decline this year, data from Bank of America Merrill Lynch analysts show. 
• The bulk of hedge funds pursue an equity long/short strategy and these funds, on average, lost 3.07 percent in June, the analysts said, noting that only equity market neutral funds, as a group, posted positive returns in June.
• For many managers, the hardest thing to gauge correctly this year has been the roller-coaster nature of the global economic recovery. Funds positioned to profit from an economic rebound by betting heavily on bank stocks and consumer products manufacturers were whipsawed by global events.

10% of Russell 1000 Already at 52 Week Highs

No matter how long you do this, it still amazes at how quickly the mood changes 180 degrees.  A week ago Friday markets were a disaster and a plunge through the 200 day moving average looked like the eventual outcome.  A week later, the S&P 500 was up 5.5% and scores of stocks are breaking out.  Indeed, 1/10th of the Russell 1000 is already at 52 week highs reports Bespoke Investments.  What correction?

As for today's action, it is exactly the type of movement the bulls want - churning action with a slight pullback.

Yandex (YNDX) - After Silent Period, Every Analyst is Uber Bullish but Goldman

On the topic of the incestual relationship between companies and analysts, a funny situation happened last week.  After taking LinkedIn (LNKD) public in the mid $40s the stock shot up well over $100 before 'coming back to earth' in the $70s-$90s.  Despite a roughly doubling of valuation the investment bankers deemed 'fair value' a month earlier, the analysts from these same sordid banks were jumping over each other last week to throw 'buy' recommendations on the stock.  So apparently the the intrinsic value of LinkedIn changed by a factor of 100% or so within 30 days.  Reading some of the valuation metrics for how they justified the buy rating and new price targets for LNKD last week, made for some entertaining fiction.  Just another day on Wall Street.

Speaking of recommendations after the IPO, today we have the crew coming out supporting Yandex (YNDX).  As you can imagine, despite a valuation 50% higher than the investment banks brought it public [May 24, 2010: Yandex Up Nearly 60%] at a mere 30 (business) days ago, almost everyone is throwing the 'buy buy buy' flag in the air.  Well one exception... Goldman Sachs.

Via Forbes:

• Five investment firms picked up coverage of the Russian Internet search giant Yandex this morning, mostly with a positive spin. Note that all five the firms were underwriters for the firm’s initial offering. (this is where you wink and nod...)

• Goldman analyst Alexander Balakhnin starts the company with a Neutral rating and $36.10 price target. “We expect Russian Internet penetration to grow by 71% through 2010-15, and believe the Russian Internet advertising market will expand at a 35% CAGR [compound annual growth rate] over the same period. Thanks to first-mover advantage, dedication to product development and dominance in its market, we see Yandex as well-positioned to capture internet growth; we forecast a 2010-15 EPS CAGR of 33%,” he writes. But the Goldman analyst also notes that the stock trades at 39.5x expected 2012 EPS, “a premium to the Chinese Internet stocks.” The analyst adds that “as Chinese peers benefit from regulatory protection, this premium is unlikely to widen, in our view.”
• Pacific Crest analyst Steve Weinstein launches with an Outperform rating and $45 target price. “We like YNDX because the company has a commanding market position, excellent technology and operates in a large market, which is being driven by strong secular trends,” he writes.
• Piper Jaffray analyst Gene Munster sets an Overweight rating and $40 target. “We believe YNDX deserves to trade at a premium to the group given higher top-line growth and a proven business model,” he writes. “Long term, we believe the Russian Internet opportunity compares well to the open-ended opportunities in China and Latin America and expect Yandex to be the biggest beneficiary of growing Internet usage in Russia.”
• Morgan Stanley analyst Joseph Okleberry starts the company with an Overweight rating and $42 target. “Yandex is the leading Internet company in Russia, a country poised for robust growth in Internet usage and advertising spend,” he writes. “Yandex’s record of innovation and execution should drive annual revenue and EPS growth of 40% through calendar 2015.”
• Deutsche Bank analyst Jeetil Patel launches with a Buy rating and $40 target. “Yandex is the leader in search in Russia (with an est. 65% share), but the company’s dominant position in other Internet categories (maps, news, mail, shopping, payments to name a few) hold long term upside from a usage, and a business model innovation standpoint,” he writes.

[May 22, 2010: Yandex - the "Russian Google" - Next Week's Hot IPO?]

No position

Netflix (NFLX) Surges Again on Deal to Serve Latin America and Caribbean

One had a rare chance to get onto the Netflix (NFLX) train during the mid month swoon in June, but as a leadership stock - once the market turned, Netflix gallops.  This morning's news about a 43 country expansion has the shorts on fire again in this name - as an infamous commentator on financial infotainment TV likes to say "It's been a house of pain".

• Netflix Inc is expanding its online video service to 43 countries in Latin America and the Caribbean.  This is Netflix's second foray outside the United States. It began offering its services in Canada last year. 
• Netflix said on Tuesday that subscribers in Mexico, Central America, South America and the Caribbean will be able to access shows and movies in Spanish, Portuguese or English later this year. 
• Netflix has more than 23 million subscribers. By contrast, Comcast, the No. 1 U.S. cable operator, has 22.8 million subscribers as of March 31.

No position

WSJ: Why You Shouldn't Buy Those Quarterly Earnings Surprises

Good article in the WSJ for those newer to 'the game' that is earnings report season.  Almost every quarter 70%+ish of companies "surprise", and investors lap it up as if its never happened before.  This is a good companion piece from a blog entry from 2007 titled [Dec 5, 2007: The Games Analysts Play... Why No One Ever Says Sell]

• Everyone loves surprises. But perhaps you shouldn't get too excited over them. This month, market strategists, television commentators and other investing pundits will bombard you with breathless updates on the percentage of companies in the Standard & Poor's 500-stock index that have reported profits even higher than what analysts expected—in Wall Street lingo, a "positive earnings surprise."
• The percentage of companies that have beaten expectations often is cited as a barometer of corporate profitability, an indicator of how well the economy as a whole is doing or a predictor of where the stock market is going.
• What goes unsaid, however, is that these positive surprises are becoming so common they are nearly universal. They are predetermined in a cynical tango-clinch between companies and the analysts who cover them.  
• In the first quarter of 2011, according to Bianco Research, 68% of the companies in the S&P 500 earned more than the consensus, or median, forecast by analysts. What's more, that quarter was the ninth in a row when at least two-thirds of the companies in the S&P generated positive surprises—and the 50th consecutive quarter in which at least half of the companies surpassed the consensus forecast of their earnings.
• Even in the depths of the financial crisis, from the third quarter of 2008 through the first quarter of 2009, between 59% and 66% of companies beat expectations, according to Wharton Research Data Services, or WRDS.
• In short, there isn't anything surprising about earnings surprises. They aren't the exception; they are the rule. "All the numbers are gamed at this point," says James A. Bianco, president of Bianco Research.

Bingo....

• What's going on here? In what used to be called "lowballing" but now goes by the euphemism of "guidance," an analyst will guesstimate what a company will earn over the next year or calendar quarter. Then the company "walks down" the analyst's forecast by providing a series of progressively lower targets until the analyst's prediction falls slightly below where the actual number is likely to come out. 

Then CNBC trumpets the beat, and the stock surges and we all clap like seals.

• Voila: The company gets to announce earnings that are better than expected, while the analyst gets to tell his investing clients that his estimate was pretty accurate and conservative to boot.

And if you peeve off the CEO by not lowballing you tend to get shut out in the future.  All part of the 'game'.

• With analysts playing the guidance game more than ever, their forecasts tell us less than ever about where the stock market is going. So over the next few weeks, don't be fooled into thinking that there is anything surprising about the flood of positive earnings surprises.

Another Important Week of Data, and the Remarkable Bounce from Oversold to Overbought

Obviously last week was one of those you will remember for a long time, as the scope and ferocity of the bounce - light volume or not - was quite remarkable.  While the front end of the week was a predictable oversold bounce on light volume heading to the end of the quarter, the action at the end of the week was more surprising.  Friday struck me the most as almost all global economic data points were poor, including those in the U.S.  Except for ISM Manufacturing.  I had thought a better than expected data point had been built into the market by that point, especially in light of the Chicago PMI figure (heavily auto related) the previous day, but that assumption was incorrect.

So with that, the huge rally pushed indexes through every major (and minor) resistance level.  The high at the beginning of June is the next level to test, around 1345.

And in a snap of a finger this market went from oversold to overbought.  One indicator (among many) is the % of stocks over the 50 day moving average.  Aside from one episode last July, the amount of real estate this measure covered to the upside has rarely been faster.  Similar violent moves can be seen in quite a few other secondary technical indicators.

After such a move, even sideways action without much of a giveback would be a victory for the bulls.  Bears have a ton of work ahead and may require very poor economic data to make progress, as the macro data pushes away after this week and earning reports take over. 

As for this week, due to the holiday we have some of the key economic reports spread over a 2 week period rather than bundled in week one of the month.  Chief among them are ISM Non Manufacturing Wednesday and the monthly employment data Friday.  The former has a consensus of 54.0 vs prior month's 54.6, while the latter shows a quite weak 110,000 jobs created and 9.1% unemployment rate.

Best Performers Last Week

Last week was the best performance in roughly 2 years, so it's an interesting week to run screens on.  Below I've listed the best performing stocks of the week, with the normal caveats (volume >100K, stock price >$10, market cap >$300M).  There were over 250 stocks/ETFs which returned at least 10%, so I limited it to 14%+ to keep the list manageable at 75 names.

This is the type of list that will showcase a few things - stocks that had been beaten down the most during the selloff, potential new leadership stocks, and stocks reacting to news from last week.

Ticker	Company	Return	Mkt Cap	Industry
LNKD	LinkedIn Corporation Class A Co	35.2%	8,934	Internet Information Providers
CCSC	Country Style Cooking Restaurant Chain	30.7%	370	Restaurants
YOKU	Youku.com Inc	30.5%	4,149	Internet Information Providers
P	Pandora Media, Inc. Common Stoc	30.4%	3,201	Internet Information Providers
QIHU	Qihoo 360 Technology Co. Ltd. A	30.2%	2,441	Internet Service Providers
SODA	SodaStream International Ltd.	26.8%	1,357	Packaging & Containers
HSTM	Healthstream Inc.	24.5%	313	Internet Information Providers
SPRD	Spreadtrum Communications Inc.	23.7%	842	Semiconductor - Broad Line
SFUN	SouFun Holdings Ltd.	22.9%	1,611	Internet Information Providers
IDCC	InterDigital, Inc.	22.6%	2,126	Wireless Communications
SSRX	3SBio Inc.	22.1%	410	Biotechnology
NOAH	Noah Holdings Limited	21.8%	696	Asset Management
SINA	Sina Corp.	21.7%	7,164	Internet Software & Services
LONG	eLong Inc.	20.6%	566	Personal Services
INTX	Intersections Inc.	20.4%	314	Consumer Services
V	Visa, Inc.	19.9%	73,021	Business Services
WAC	Walter Investment Management Corp.	19.5%	589	Asset Management
CRUS	Cirrus Logic Inc.	19.1%	1,102	Semiconductor - Specialized
SHS	Sauer-Danfoss Inc.	19.0%	2,560	Diversified Machinery
WOR	Worthington Industries, Inc.	18.8%	1,736	Steel & Iron
OSK	Oshkosh Corporation	18.7%	3,001	Trucks & Other Vehicles
MPEL	Melco Crown Entertainment Ltd.	18.7%	7,274	Resorts & Casinos
NANO	Nanometrics Incorporated	18.7%	455	Scientific & Technical Instruments
ASCMA	Ascent Media Corporation	18.6%	812	CATV Systems
USNA	USANA Health Sciences Inc.	18.6%	528	Drug Related Products
FAS	Direxion Daily Financial Bull 3X Shares	18.4%	1,796	Exchange Traded Fund
HSFT	hiSoft Technology International Ltd.	18.3%	465	Business Software & Services
ARII	American Railcar Industries	18.1%	524	Railroads
AH	Accretive Health, Inc.	17.6%	2,781	Management Services
END	Endeavour International Corporation	17.4%	567	Independent Oil & Gas
AZZ	AZZ Incorporated	17.3%	640	Industrial Electrical Equipment
NXPI	NXP Semiconductors NV	17.3%	6,889	Semiconductor - Broad Line
FNSR	Finisar Corp.	17.3%	1,694	Networking & Communication Devices
FSL	Freescale Semiconductor Inc.	17.1%	8,012	Semiconductor - Broad Line
WPRT	Westport Innovations Inc.	16.6%	1,181	Pollution & Treatment Controls
VIT	VanceInfo Technologies Inc.	16.5%	1,043	Information Technology Services
SPWRA	SunPower Corporation	16.3%	1,930	Semiconductor - Specialized
URI	United Rentals, Inc.	16.3%	1,630	Rental & Leasing Services
ISS	Isoftstone Holdings Limited	16.2%	850	Information Technology Services
ASIA	AsiaInfo-Linkage,Inc.	16.1%	1,246	Security Software & Services
BAS	Basic Energy Services, Inc.	16.1%	1,372	Oil & Gas Equipment & Services
PDC	Pioneer Drilling Co.	15.8%	849	Oil & Gas Drilling & Exploration
NXY	Nexen Inc.	15.8%	12,053	Independent Oil & Gas
SMSC	Standard Microsystems Corp.	15.7%	628	Semiconductor - Integrated Circuits
JOBS	51job Inc.	15.7%	1,617	Staffing & Outsourcing Services
LINC	Lincoln Educational Services	15.6%	420	Education & Training Services
EBAY	eBay Inc.	15.5%	42,493	Catalog & Mail Order Houses
SZYM	Solazyme, Inc.	15.4%	1,369	Chemicals - Major Diversified
GTLS	Chart Industries Inc.	15.4%	1,691	Metal Fabrication
KRO	Kronos Worldwide Inc.	15.4%	3,754	Specialty Chemicals
CYD	China Yuchai International Limited	15.3%	833	Diversified Machinery
CYOU	Changyou.com Limited	15.2%	2,379	Multimedia & Graphics Software
CRZO	Carrizo Oil & Gas Inc.	15.2%	1,636	Independent Oil & Gas
BID	Sotheby's	15.1%	3,136	Specialty Retail, Other
WNR	Western Refining Inc.	15.1%	1,697	Oil & Gas Refining & Marketing
MMR	McMoRan Exploration Co.	15.1%	2,939	Independent Oil & Gas
SFY	Swift Energy Co.	14.9%	1,638	Independent Oil & Gas
RVBD	Riverbed Technology, Inc.	14.9%	6,152	Networking & Communication Devices
UNF	UniFirst Corp.	14.8%	1,161	Consumer Services
MA	Mastercard Incorporated	14.7%	37,947	Business Services
GIB	CGI Group, Inc.	14.5%	6,892	Internet Software & Services
GPOR	Gulfport Energy Corp.	14.5%	1,437	Independent Oil & Gas
AMLN	Amylin Pharmaceuticals, Inc.	14.5%	1,975	Biotechnology
VELT	Velti Plc	14.4%	1,020	Business Software & Services
GSM	Globe Specialty Metals, Inc.	14.3%	1,770	Industrial Metals & Minerals
CBI	Chicago Bridge & Iron Company N.V.	14.3%	3,978	General Contractors
ARW	Arrow Electronics, Inc.	14.2%	4,839	Electronics Wholesale
BBVA	Banco Bilbao Vizcaya Argentaria, S.A.	14.2%	55,211	Foreign Regional Banks
MTW	Manitowoc Co. Inc.	14.2%	2,309	Farm & Construction Machinery
HEES	H&E Equipment Services Inc.	14.2%	510	Industrial Equipment & Components
ALLT	Allot Communications Ltd.	14.2%	431	Technical & System Software
FSLR	First Solar, Inc.	14.2%	11,464	Semiconductor - Specialized
RRR	RSC Holdings, Inc.	14.1%	1,290	Rental & Leasing Services
SXCI	SXC Health Solutions, Corp.	14.1%	3,924	Application Software
TEX	Terex Corp.	14.0%	3,258	Farm & Construction Machinery

Turkey Now Growing Faster than China

While all the focus is usually on the big emerging (or emerged) markets such as those who are members of BRIC, there are quite a few other interesting stories out there such as Chile, Indonesia, and Turkey.  [July 6, 2010: Turkey - Where East Meets West, and Prospects are Improving]  While there are relatively limited choices to invest in these countries, they are certainly part of a secondary group of locales that are helping to boost the fortunes of U.S. multinationals.

Turkey just reported a 11% GDP figure, outpacing that if China*

*how accurate these figures are, are of course up for debate but directionally they do mean something.

Despite this strong GDP growth, Turkey's market is struggling with fears of a growing current account deficit.

Via WSJ

• The Turkish economy grew by 11% in the first quarter, outstripping China and confirming Turkey as Eurasia's rising tiger.   Thursday's official growth figure, compared with the year-earlier period, easily beat market expectations, at a time when many of Turkey's neighbors in the Middle East and Europe struggle with political turmoil and bailouts.
• But in what is fast emerging as a Turkish paradox, foreign investors aren't rushing to snap up assets.   A key concern in markets, economists say, is what action the new government will take to control a ballooning current-account deficit that is above 8% of gross domestic product and rising quickly—an imbalance seen as a sign of overheating, despite relatively benign inflation numbers.
• Thursday's statistics also included trade figures for May, which saw the trade deficit double from the same month last year, adding to the current-account imbalance. Imports to Turkey expanded by 42.6%, almost four times as fast as its exports at 11.7%, according to Turkstat, the state statistics agency.

• Turkey's growth until now has been dominated by expansion in the financial, retail and construction sectors, driven by rapid demand and credit growth, said Mr. Alkin. Turkey's banking sector is solid, but the country's consumption-driven model, as with Spain and China, no longer looks sustainable in the long term. Turkey, he said, has to lower costs, produce more, import less and move up the value chain.
• One sign of investor nervousness is that the Istanbul Stock Exchange has been one of the worst performers among emerging markets this year, down by 9.75% since early May. Currency traders, meanwhile, have been selling off the lira, which has fallen nearly 19% since November.  
• The central bank has tried to squeeze bank lending and consumption by raising reserve requirements for commercial banks. But at the same time, it has put its foot on the gas, cutting interest rates as it tried to deter volatile short-term investment inflows that are financing the current-account deficit. That unorthodox policy is increasingly controversial and hasn't worked. The central bank says that more time is needed to see effects and that inflation, though ticking up, is only just off record lows. 
• Still, many economists and bankers believe monetary policy can't fix what ails Turkey. Turkey produces minimal quantities of oil and gas. Meanwhile, manufacturers face high costs relative to competitors, economists say, and so tend to use imported semi-finished goods rather than produce their own components. As a result, as Turkey produces more, it imports more—85% of Turkish imports are commodities and semi-finished products, according to Mr. Alkin.

Key ETF Performance First Half 2011

Courtesy of Bespoke we have the performances of the major ETFs during the first half of 2011 broken out in a nice format.

[click to enlarge]

In terms of size, for U.S. markets midcaps (my favorite sector) continue to dominate although small caps did well too.  Growth continued to dominate over value.

In currency, the euro is having a great year despite all the turmoil in sovereign debt... this is a direct relation to the damage Bernanke is doing to the American saver.  Interest rate differentials and QEinfinity continue to punish Americans.

By sector, healthcare was the surprising big winner, and financials continue the upteempth quarter of being a dog.

Globally, while there is no surprise in the fantastic performance of the German market, the outperformance of France has me scratching my head.  Italy is also interesting considering they seem to be next in the corsshairs behind Spain in terms of sovereign debt.  India and Brazil continue to struggle.

Silver obviously was the star in the major commodities, although 2 months ago the outperformance was of a far better magnitude.

Nearly 65 S&P Points Gained this Week

Now the discussion goes from breaking the 200 day moving average (down in the S&P 1260s), to reaching back to highs of the year near 1370.  (less than 40 S&P points way)  What a week....light volume or not.

Need to put in my notes to constantly err on side of bullishness ahead of holidays as volume dissipates.

All News is Good News as Market Surges on ISM Manufacturing Reading of 55.3. Bad Construction Spending Figure and Consumer Sentiment Ignored

We just had 3 reports released but all eyes seem to be on ISM Manufacturing which came in at 55.3 versus an expectation of 52ish.  (May's reading was 53.5)  For some reason it is not yet on the ISM website so I can't bring over the table.  New orders and employment ticked up slightly.  Prices paid plunged from 76.0 to 68.5 - a good thing.  (lowest since August 2010)

The S&P 500 has jumped a quick 0.7% in response.

 Construction spending dropped 0.6% vs 0.1% drop expected (ignored)

The University of Michigan consumer sentiment figure dropped from 74.3 to 71.5. (ignored)

I think it would be safe to say the market is short term overbought as it nearly reaches a mind blowing weekly gain of 5% on the S&P 500.

x

China PMI Falls to 28 Month Low, UK to 21 Month Low, Germany 17 Month Low - Market Shrugs

Manufacturing data from across the globe came in punk overnight but it appears world markets are taking the approach that the 'soft patch' was 'transitory' and lower oil prices + Japan rebuilding supply chains will cause a rebound in the months ahead.  The bigger question is, how much of a rebound.

That... or we're just in a moment where economic news doesn't matter much as euphoria has quickly returned.

Note ISM Manufacturing in the U.S. is released at 10 AM  today - with the market running so far this week ("best week in a year") this one might be prone to disappointment.  Normally we'd have employment figures the first Friday of the month, but that is pushed off until next Friday.

----------------------

We'll begin in China where PMI is once again dangerously close to the 50 level which marks the transition from expansion to contraction.

• The China Federation of Logistics and Purchasing said its Purchasing Managers’ Index was at 50.9 in June compared with 52 in May.  The PMI was the weakest in 28 months and well below the 51.3 expected in a Reuters poll of economists. 
• Meanwhile, a rival survey published by HSBC and U.K. group Markit showed headline activity at 50.1, easing from 51.6 in May, indicating factory output has now trended lower in seven of the past eight months. 

Germany, the world's second largest merchandise exporter and superstar of this recovery (unemployment just fell to 6.9%) still is solidly in expansion mode but quite far below May's levels.

• Markit’s gauge of euro-area manufacturing tumbled to 52 in June from 54.6 a month earlier. Germany, the region’s largest economy, saw its measure fall to 54.6 from 57.7.

Of course with TRUE near term austerity unlike projections of $4B over 10-12 years ($400B or less a year) in the U.S., the economy has been stalling in the U.K. for many months.

• The British gauge fell to 51.3 from a revised 52 in May, the lowest level since September 2009. 

----------------------------

Bigger picture, the questions facing markets in the coming 1-4 months will be (a) will Japan's rebound carry the day globally, (b) can crude oil stay 'contained', preferably below $100 on WTIC, and (c) what does China do facing an inflation problem ... and bad loan problem from their epic 2009 stimulus... but the need to keep the economy on steroids as it appears to be quickly hitting stall speed in the manufacturing sector.