6/15/2012
By Carlos Guillen, Research Analyst

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In spite of rather unfavorable economic data on consumer sentiment and industrial production poster earlier on Friday, it is encouraging to see that equity market held up remarkably well after spiking nicely at the start of the trading session. While nice up days like this are always welcomed with open arms, the reason for Friday's gains do not appear to be based on any fundamental components. The logical conclusion should be that stocks should have really declining Friday, but instead stocks traded higher on wishful thinking; that is, on hope that central banks will provide the liquidity necessary if things fail in Europe this weekend. That is a lot of wishful thinking based on not a whole lot.

One reason that investors should have really been discouraged about today was that consumer sentiment data failed to meet expectations and fell to the lowest level so far this year. The University of Michigan Consumer Sentiment June preliminary result landed at 74.1, which was lower than the Street's expectation of 77.0, decreasing from the 79.3 reached last month and putting an end to a rather encouraging trend that had been developing for the prior nine months. Up until last month, it appeared that consumers were hanging on to their positive sentiment as they continued sensing that the employment backdrop was improving and that wage prospects were get better, not anymore. The data if just too difficult to ignore, and after four straight months of slowing jobs growth and wage gains under inflation rates, coupled with continuing news flow about the European debt crisis, consumers are beginning to lose hope, raising the risk that consumer spending will stagnate and throw the economy into a tail spin.

Industrial production data was yet another reason to be discouraged today as its level unexpectedly declined, adding to the mounting evidence that the U.S. will experience slowing growth this year, if any. According to the Fed, the output at factories, mines, and utilities decreased 0.1 percent in May after increasing 1 percent in April, landing below economists' estimate calling for a 0.1 gain. While the decline is not very significant in itself, the fact that it went against the slight uptrend and considering the mounting negative economic data in general, the news should have been depressing at the very least.

Instead, equities markets held firmly in the Green, with the Dow Jones Industrial Average gaining over 115 points by the end of the trading session, or up 0.91 percent. However, with the Greek elections looming this Sunday and with the Fed meeting next week, anything is possible, and the volatility shall continue.

Carlos Guillen
Wall Street Strategies