May 25, 2012 A quiet end to a turbulent week Futures very early today had a positive bias, but they turned modestly negative about 30 minutes before the opening. Slightly higher consumer confidence data from Germany and France helped European markets and U.S. futures, but the latest data on U.S. consumer sentiment was more influential. The final report of the May Michigan Sentiment Index showed a nearly three point rise in the Index to 79.3. The Index has not been this high since October 2007. Whatever enthusiasm the Michigan report generated was dampened by reports that a major region in Spain indicated it no longer was able to finance its debt needs. Also there was concern that the long weekend in the U.S. could be a prime time for Greece to announce something the markets might not like. With a key election scheduled for June 17, however, it seems highly unlikely that Greece would do anything before then. Talbots (TLB) fell more than 30 percent despite reporting consensus-beating earnings. The stock was lower as it appears a potential buyout of the troubled retailer fell through. Chesapeake Energy (CHK) was up more 2 ½ percent on news about Carl Icahn taking a significant position in the stock and that Blackrock (BLK) increased its stake in the company from one million shares to 4-5 million shares. There seems to be some softening in Germany’s view of potential aid to Greece. German chancellor Angela Merkel has been very vocal in her opposition to some of the most commonly mentioned approaches to end the problems in Greece. She specifically has been opposed to the Euro bond concept, but reports overnight suggest she may be willing to compromise on this and other related issues. Merkel is in the mist of political debate in Germany over the nation’s role in aid to troubled EU nations. Mid-morning today sector activity showed a clear bias toward typically defensive areas like telecoms, utilities, staples and healthcare. Materials and energy were the two weakest sectors. Trading today likely will be impacted to some extent by the fact that U.S. markets are closed Monday for the Memorial Day holiday and the government bond market will close early today. It is likely that the market will be quiet most of the day unless there is solid news about the situation in Europe. Next week has a long list of economic reports crammed into only four days. The complete calendar of releases is in the table below (in the complete report) . As usual, the employment report next Friday probably will be the week’s most consequential release. Despite the renewal of worries about Greece, unless the market has a very bad end to today’s session, the S&P 500 will end the week with a gain. There were downside probes toward the most recent reaction low, but the S&P managed to remain above that low. Technically there were no significant events this week. Our technical benchmarks for the S&P 500 continue to be 1340-1360 on the upside and 1275 on the downside. Breaks of either would suggest the continuation of the move that took the S&P to these levels. While we are not in favor of many of the proposed steps to end the Greek problem, we suspect that short-term political realities will rule the day and lead to another example of kicking the fiscal can down the road. But as we noted in yesterday’s Daily, this process eventually will lead to the can being so battered that it no longer will be usable as a means of fending off the fiscal disaster Greece could face. But as has been true for far too long, putting off until tomorrow what should be done today seems to be the preferred means of dealing with any problem. And, unfortunately it’s Washington’s favored method also. Enjoy the Memorial Day break and take time to think of the men and women who should be in our memories as the people that gave all of us the opportunities we are blessed with in the Untied States. Have a great weekend.
