Below is excerpt from recent market commentary from the managers of the Marketfield fund.
US economic data remains squishy, but not as straightforwardly weak as consensus imagines. Perhaps most importantly non-financial earnings continue to produce positive surprises with a number retail and technology stocks reporting better than expected earnings in recent days. The Federal Reserve Board however seems to have capitulated to the fears of downside pressure issuing a decidedly downbeat statement on Wednesday that unnerved the US equity market.
As to their decision to intervene in the long end of the treasury curve this was expected but is unlikely to have a significant effect other than possibly collapsing the wide spread between the 10 and 30 year bond. As we have stated before, US monetary policy is already extremely stimulative and further embroilment of the Federal Reserve into the yield curve was an unnecessary complication. No doubt the well meaning members of the FOMC felt the need to be seen to be doing something, and at least have chosen a path that is unlikely to make matters worse.
Even after the abrupt decline on Wednesday afternoon the SPX remains in the middle of its trading range and with the exception of financial stocks, a large number of which made new post 2009 lows, most sectors remain well above key support although some may end up testing this during what looks to be a difficult week for stocks. The Nasdaq Index continues to look much better and actually broke above its 200 day ma before being pulled lower on Wednesday.
Even so the index remains in positive territory for 2011, and is the only large global index to be able to make this claim. The out performance by the NDX remains the most interesting aspect of the long corrective phase and we would be building positions in this index during the current pullback. The small cap Russell 2000 index has shown none of the defensive qualities of the larger cap indexes and we would be avoiding this area of the US equity market.
This takes us to Europe, where a hurried announcement regarding the provision of emergency US Dollar auctions last Thursday at least bought some time for the beleaguered institutions that were at risk of being choked out of funding markets. Unfortunately the first week has been frittered away without other progress being made other than a widening of collateral accepted by the ECB. The danger of a further sharp dislocation by the market has not been averted by either of these moves and a far more radical change of tack is still urgently required. The only question in our minds is whether a narrow portion of the US equity market can start to detach itself from Europe's woes and start to make steady progress in the absence of a solution being hammered out across the Atlantic Ocean. This seems unlikely if things are allowed to proceed to a full-blown crisis, but a longer process of muddling through could potentially create some great opportunities in a number of US sectors.
