The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Good Evening: Stock prices held in fairly well today, but it’s very difficult to draw firm conclusions from the trading on a Thursday prior to the release of employment figures. The news was mixed, with jobless claims ticking lower (a positive) and consumer credit contracting (a negative). Chain store sales were also mixed in that most firms reported horrible sales for December, but many (e.g. Sears) managed to beat expectations. The most notable exception in retail happened to the company most investors looking for retail exposure have crowded into — WalMart. WMT disappointed on both the sales and guidance fronts, and Mr. Market rewarded WalMart’s shareholders with a 7.5% loss (it had been down as much as 10%).

Equities opened lower in response to the news out of Arkansas, with most of the major averages breaking below yesterday’s lows in the early going. But that was it for the downside today. The early dip was bought and the averages worked their way back to the unchanged mark within ninety minutes. WMT remained a drag on the Dow, however, and stocks dipped again just after lunch. When the morning lows held, buyers emerged and took the indexes higher into the close. Both the Dow and Dow Transports lagged and finished a touch lower, while the NASDAQ and Russell 2000 both posted gains in the neighborhood of 1%. Treasurys were firm after a 10 year note auction saw buyers figuratively lined up around the block at the NY Fed to hand their money to our government in exchange for a paltry 2.42% yield. Currency traders took the dollar down in anticipation of a weak employment report, and most commodities followed energy prices to the downside. The CRB index fell 1.2%.

Speculating about tomorrow’s nonfarm payrolls number, the unemployment rate, or the market’s reaction to them is the type of foolish task I will leave to other prognosticators. Much more important will be how the markets digest the data. By digest, I refer not to how the markets open or how they trade during the middle of the day. The final hour of trading in stocks, bonds, currencies, and commodities will be much more telling than whatever happens once the figures are breathlessly reported from the steps of the Labor Department. I have no idea what might happen, except to say that market participants are talking about a very weak report. And yet, since asset prices don’t seem to have factored in a disaster, it’s really a jump ball tomorrow.

None of what spills out of the BLS on Friday will impact the opinion of BofA/Merrill’s David Rosenberg, though. In the piece you see below, David takes to task his entire profession for fundamentally missing not only the credit crisis of 2008, but also just how long it might take for our economy (and thus our markets) to recover from it all. Some of the statistics he cites are downright scary, and the contraction in today’s consumer credit figures only buttress his argument. I can’t work myself into the same negative frenzy that Mr. Rosenberg does on this occasion, but he is thoughtful and he has been spot on ever since the credit markets slid into the ditch in 2007. I do agree with him that our markets have unfinished business to the downside in 2009; I just don’t know if the reality check starts tomorrow or at some later date. Fortunately, we should have a few more clues by tomorrow’s closing bell.

– Jack McHugh

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Focus is on the cure, not the patient