FTQ Market Overview - June 11, 2012

I think that we saw a combination of a short squeeze and expectations of an announcement of more QE from the Fed (which did not happen) in the rally late last week. However perceived positive China data and the announcement of the Spanish half-rescue have kept the markets in neutral territory.  Volume on the S&P remains low on the buy side and higher on the sell side in recent months: 

This week there is a laundry list of economic indicators being released: 

There are a couple important data points to follow in this heavy reporting week.  We are looking for tells in the inflation situation.  With treasury yields at 1.6% and S&P dividend yields at around 2.2% - below historic levels (see below chart) - we should at least the consider the possibility of deflation.  Further, if the globe slides into recession, will large multinationals be able to continue to pay out dividends at these levels?  It seems likely in the short term as they are sitting on sizable sums of cash a the moment.  Therefore, we may see a slowing in both appreciation and dividend growth in the next four quarters.

On economic activity, the The Disciplined Investor says,"Some of the more important areas that I am looking at are the industrial production, capacity utilization and UMich Sentiment readings. We have seen a bifurcation with the latest UMich and Conference Board reports and this could be the month that both start to align more closely."

Meanwhile, European leaders with haggle over the difference between $125bn and $180bn in bailout money based on modeling that looks more like calculus than simple math (always scary when simple math is abandoned).  Either way, it is Europe that is driving market uncertainty and while good help the economy, bad news may provide buying opportunities for long positions in target equities (KO, BRK, KMR and CVS).