U.S. Stocks Rebound After Goldman Equity Call Confusion, ECB Announces New Collateral Acceptance:
Stocks rose today taking back some of the losses from yesterday after Goldman Sachs sent out confusing messages on the economy and trading U.S. equities.
Yesterday, Goldman Sachs told investors to not only sell stocks, but to bet on them declining. The Goldman note told investors to short stocks one day after the Fed enacted Operation Twist.
The Goldman Sachs note read:
We are recommending a short position in the S&P 500 index with a target of 1285 (roughly 5% below current levels) and a stop on a close above 1390. This morning, the Philly Fed print of -16.6, down sequentially and worse than expected, provides further evidence that weakness has extended into June.
Although yesterday’s FOMC delivered easing as expected, with a dovish statement, positive risk sentiment ahead of the FOMC had already buoyed markets. And we now think, with incremental US monetary policy on hold, the market will need to confront a deteriorating growth picture near term.
The risk to our recommendation is that the data soon reverts to the 2-percent growth path our economists expect, that China growth turns, or that European policy-makers’ rhetoric buoys risk sentiment further from here, with the upcoming end-of-June summit a focal point on this count.
On the same day, Goldman Sachs economist and well respected market guru Abby Joseph Cohen stated she believed equities could go higher. All of this came roughly after a few weeks ago when Goldman stated this was the opportunity of a generation to buy stocks.
Ms. Cohen spoke to Reuters at a conference stating, “On average, over history when inflation is under control – and inflation is under control now – the P/E ratio is 18 times earnings,”
“Clearly it suggests stocks are not expensive on that basis,” … “When we look at some cash flow measures of stock valuation, the U.S. stock market looks like it is offering good value.”
The market dropped in panicky fashion yesterday with the Dow falling over 251 points in the session.
The ECB Announces It May Take Alternate Forms Of Collateral
The market also rebounded slightly on news central bankers in Europe would be willing to work cohesively to accept different collateral. The European Central Bank said today it is willing to start accepting various forms of collateral in its lending operations. The news that the ECB would be accepting lower quality collateral was welcomed by investors as a sign the region is willing to try new measures to help quell the economic woes that have been dragging down world economic growth.
We remain bullish on the overall market in the short-run and we expect more announcements from the ECB and other central banks as economic data continues to deteriorate. We would not be surprised to see more calls for QE3 grow if employment remains weak which we believe will happen over the summer. June 2012 unemployment numbers will be marginal based on initial jobless claims data that has already been reported. We are bullish with a defensive posture as we forecast the Bernanke Put will keep markets afloat in the medium run.
The S&P 500 rose 9.51 to 1,335.02 while the NASDAQ rose 33.33 to 2,892.42 today as major indexes tried to regain from yesterday’s deep decline.
