What the Market Wants: What Merry Christmas? What Happy New Year?

Courtesy of David Brown, Chief Market Strategist, Sabrient

The week has started by reversing all of last week’s gains, plus some more for “bad measure.” Today, Intel (INTC) lowered its outlook citing hard drive shortages which only intensified pre-market weakness weighing down the semiconductor industry and the entire Nasdaq index.  Last week’s leading gain from Small Cap Growth (+1.6%) is gone, and even worse, Mid Cap Growth, last week’s worst style/cap, fell 2% today.  Why do these losses continue despite decent economic reports that included the lowest new jobless claims in many moons, a slight improvement in Trade Balance and Factory Orders from expectations and generally good reports for past month?

For starters, what was accomplished at last week’s EU summit was of a limited nature. True, the first elements of a new “fiscal compact” were agreed upon by the majority of EU leaders, which would include provisions to punish euro-zone members who continue to run big deficits. The agreement would also require that all member-states inject some form of balanced budget amendments into their respective national laws. However, England refused to sign off on the agreement, signaling that a large schism within the EU remained. In addition, the failure of the European Central Bank to agree to provide an adequate backstop against the rising yields on Italian bonds could convince investors that the mechanisms necessary for containing the crisis have failed to be installed.

Alas, no further meetings of consequence are scheduled until 2012.  That combined with little progress within our congress, continued signs of weakness in China, and growing chaos in Russia, Syria, Egypt and…..  Well, you get the picture—it’s not pretty.

There is no clear reason for optimism, especially after the six Central Banks’ agreement several weeks ago had seemed to, at a minimum, postpone the day of reckoning for the Euro.  That day is now.  Or maybe it will be after the holidays, but we would do best to expect the worst.

The market wants cash flow, low or no debt, growth, bargain prices and high yields.  There are few such stocks.  In the meantime, be sure to hedge, because there doesn’t seem to be anywhere else to hide.

Market Stats. In case you care, last week’s leading sector was non-cyclical consumer, healthcare, utilities and technology.  We know financials were actually second, but we choose to ignore that sector.  Don’t go there!  Our forward-looking Sectorcast likes Energy, Financials (don’t go there) and Basic Materials.  It seems like we are expecting inflationary behavior.

Here are the market stats.

One last thing: as I write, the market came mighty close to falling back into the abyss below 1220.

On the plus side, at least in regard to entertainment value, the billionaire owner of the New Jersey Nets, Mikhail Prokhorov, announced that he is intends to run against Putin for the presidency of Russia. As a participant in the shenanigans that have cost the NBA a chunk of their season, he would seem to be a perfect fit on the stage of world leaders who seem determined to keep the markets in high volatility mode.

Merry Christmas! Or maybe a Happy New Year if we’re lucky!

4 Stock Ideas for this Market

This week, I used the GARP (growth at a reasonable price) preset search in MyStockFinder (http://MyStockFinder.com). I also included Buys, in addition to Strong Buys. Here are four stock ideas that look intriguing:

Telephone & Data Systems Inc. (TDS) – Telecommunications
ANN INC (ANN) – Cyclical Consumer
The Valspar Corporation (VAL)—Industrials
The Andersons Inc. (ANDE)—Non-Cyclical Consumer

Until next week,

David Brown

Full disclosure: The author holds no positions in this week’s “stock ideas.”