FYI | Nov 03 2006
By Greg Peel
Tonight sees the release of the all-important US labour figures (hourly wage measure) and last night Wall Street was acting nervously. It didn’t help that productivity figures were released that came in, once again, below expectations. The fear is that if US companies are experiencing low productivity they will likely respond by raising wages, a theory borne out by a 3.8% rise in unit labour cost.
That figure implied year-on-year unit labour cost growth of 5.3% in the September quarter, the highest growth since 1982.
Inflation fears will just not go away. Following weak economic data all week, it does appear that the US is potentially in a period of stagflation. This should not be a boom time for equities.
But it has been, because quarterly profit results have continued to surprise on the upside. The surprise is more that they haven’t been bad, rather than that they’ve been really good, but that’s been enough to drive the Dow into record territory. Even last night, with a modest fall of 12 points, the Dow does not seem to be in bearish mode.
Nor are there any obvious bears calling for a collapse. But the growing sentiment is that the Dow has had such a good run it’s time for a bit of a pullback in what is otherwise an upward trend.
This week has seen both the Dow and the Nasdaq open higher and close lower on the day on more than one occasion. This is a pattern that respected commentator Dennis Gartman believes suggest a short term correction. He notes leading stocks such as GM and IBM have posted similar charts
His views are backed up by Morgan Stanley’s chief investment strategist Henry McVey who believes the S&P500 has hit technical resistance and should shed some of October’s gains. His economist colleague, Stephen Roach, concurs. However, McVey is still calling the market higher come year end (Morgan Stanley Sees A Continued Advance In US Equities, 02/11/06).
FN Arena’s very own Wizard has also called a round of profit-taking in the Nasdaq (31/10/06) based on his technical indicators.
(Personally, I have my own technical indicator – a coin. Over time it’s been about 50% accurate which is a better result than most technical analysts. I just tossed it and it came up tails – thus a reversal must be on the cards).
Just as a footnote, I mentioned yesterday John Kerry’s much over-attacked “gaffe” when he told college students in the US they should study hard or they’ll end up stuck in Iraq. Dennis Gartman last night published a wonderful photo that just goes to show that troops do maintain their sense of humour in the line of fire. Copyright does not permit me to publish it here, but I can tell you it featured several troops holding up a painted banner that read:
“HALP US JON CARRY – WE R STUCK HEAR N IRAK”.