Market Tries to Hold on
Market Commentary
By WSS Research Team
By Carlos Guillen

Equity markets are attempting to make a comeback but are not being successful as investors are losing hope that even if the Fed steps up quantitative easing efforts, these will have very little effect on the economy.

Perhaps the most significant piece of economic data today was that the U.S. trade deficit shrank in May, as exports increased while imports declined, perhaps serving to assuage the deceleration in second quarter gross domestic product growth estimates. According to the Commerce Department, the trade deficit decreased 3.8 percent to $48.7 billion in May, under the $50.6 billion reached in April and virtually in line with the Street's estimate of $48.9 billion. It was rather encouraging to see that purchases from abroad fell to the lowest level in three months, while exports climbed to the second-highest on record. In terms of the two main components, exports increased 0.2 percent to $183.1 billion, as overseas demand for capital goods, foods, feeds, and beverages strengthened. Imports dropped 0.67 percent to $231.8 billion, as demand for industrial supplies, materials, consumer goods eased. On the other hand, an increase in imports of business equipment may be indicating sustained investment in the U.S., and more inbound shipments of cars is pointing to continued strength in the auto industry. Despite the shrinking deficit, however, Goldman Sachs continued to reduce its second quarter GDP forecast to 1.3 percent from 1.5 percent, while Barclay's lowered their estimate to 1.5 percent, down a full percentage point from prior estimates.

So far into the beginning of earnings season major players are reporting reduced earnings and sales estimates, including Ford, FedEx, Advanced Micro Devices, and Applied Materials. On Friday, we'll see what JP Morgan has to say about its earnings for the June quarter. While earnings have been projected to increase softly for the S&P 500, it is becoming more likely that, for the first time since early 2009, profits could register a decline for the second quarter as demand shrinks around the world.

At the moment, investors wait to hear from the Fed at 2:00 PM when they release the minutes from the June Fed meeting. So far the expectation, or at least the hope, is that more help will come in the form of quantitative easing as the economic backdrop deteriorates. However, at the same time many on the Street are beginning to believe that further monetary easing will have less of an effect than it had in the past.

2 Boring Data Points Spell Economic Doom
By David Urani

The first boring economic point was the May trade balance. The overall US trade deficit actually fell to $48.7 billion from $50.6 billion, and was dead in line with the consensus. There was some increase in food exports but mainly, as could be expected, a drop in oil prices reduced imports of petro. The problem though is that without petro, the deficit increased to $41.4 billion from $40.3 billion. And that has slightly negative implications for US production, as it implies that more of our goods consumption during the month was in products made out of the country.

Secondly there was the wholesale trade report with a headline inventory increase of 0.3% for May which was in line with consensus. Yet, the sales figure showed a 0.8% drop; that's the first overall drop in sales since last May, and the biggest drop since March 2009. Beyond that, there was a bit of bearishness in the fact that the previous month's inventory was revised down, and that means May's increase is technically not up to economists' expectations.

Taken together these seemingly dull, in-line with consensus readings, add up to a significant impact. That's because they both have slight implications on US GDP. In fact, Goldman Sachs lowered its 2Q GDP projections twice following the two releases, with each one estimated to reduce GDP by 0.1%. They now project 1.3% growth versus 1.5% previously.

 

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