Is it Groundhog Day Again?

If any of you remember the movie Groundhog Day starring Bill Murray it is where reporter Phil Connors (Murray) continues to replay the same day over and over again, living the exact same sequence of events on Feb 2.

Everyday is the same routine, at 6am the same song comes on, same people, same weather, same city, same conditions. I bring this up because as we embark on a new week it is loaded with ‘stuff’ that can move markets heavily. Just like a month ago, just like the previous month, and the previous year.

Many of the same worries in April and May come back to give us chills in June, and while we thought Greece was ‘solved’ it is still on the front burner – like in 2011 and in 2010. Will it ever end? Will we ever move on past our own Groundhog Day experience?

So, on to the coming week. After the Memorial Day Holiday is finished there is some heavy economic data. This is ‘jobs week’ with ADP and weekly jobless claims on tap for today (not great) and then the NFP comes out tomorrow.

It appears the estimate is quite high once again (165-175K was consensus, now moving towards ~150k) and is far more optimistic than last month. As you may recall the last two jobs numbers put the markets down on the mat. Will the third time be the charm?

I have not been hearing much out there to inspire some big hiring in the private sector. Meanwhile government jobs have been contracting at a consistent pace. More caution is being thrown into the wind.

The market sentiment is rather sour this time around (along with being down 8% or so since early April) so even if there is some disappointment it may already be priced in.

What I’ll be looking at are the secondary data which includes Chicago PMI, pending home sales(weak), ISM, construction spending along with auto/truck sales.

These will give us a nice clue as to how this current quarter is coming along. I cannot see the Q2 GDP coming in much better that Q1 – where we’ll also see a second estimate (it came in right on consensus at + 1.9%). It is also the end of the month (today, Thursday) and the market tape will likely be painted just prior.

Volatility has become quite elevated but may just be getting ready to run here. With everything to worry about from the economy, Greece, the rest of Europe, China slowing down and our debt problems it is no wonder the easy bet is to reach for protection.

As you see from the chart the trend higher in VIX (market volatility) is persistent and strong. Puts are getting more expensive, the insurance is going up as the probability of lower prices climbs. Playing the trend here can be a profitable one if you are nimble, quick and NOT too greedy. Move your feet and take yours!

I would love to hear your comments on this article – I would be happy to respond in kind!

Bob Lang