The S&P 500 closed narrowly in the red Tuesday, selling off after healthy overnight gains. The market has been strong in 2012 based largely on strong US economic data, ignoring the still fragile situation in Europe. However, the market got hit with a double dose of bad data this morning in the form of PMI and consumer confidence.
After the close, Amazon (AMZN) reported earnings, beating EPS expectations but falling short on revenues. The stock is down almost 9% after hours.
The scenario that played out today looked much like last Thursday, when the market gapped up and sold off hard based on worse than expected new home sales. Right now the market is in a tricky spot with some crosswinds blowing. There is a great deal of uncertainty in Europe; will Greece and its creditors (at the direction of Euro finance minsters) be able to reach a deal on its debt in a timely fashion? Will Britain and the Czech Republic ever sign the tighter fiscal being pushed in Europe right now? Will it all even matter in the long-run for the PIIGS in Europe?
Despite a recent wave of improving data, there is still uncertainty about the US economy. Housing looks nowhere near a bottom, the employment picture has only just started to improve (and only marginally). The implicit Fed backstop seems to be holding the market up once again, but for how long until we either see a markedly improved economy or an actual round of further quantitative easing?
While uncertainty is still rife in the world economy, the price action has been unmistakably bullish in 2012. Stocks have been unable to blast off over the past two weeks, but they have been resilient when confronted with any adversity. Today we saw some downside momentum in the morning, but it was contained and we closed well off the lows of the day.
All in all, now is a time to remain nimble and flexible. You do not always have to be aggressive picking market direction, and now, in my opinion, is one of those times to pare down risk exposure. More attractive set-ups will present themselves in the future.
*DISCLOSURES: Scott Redler is long SPY, GRPN, AAPL, REE, WMT, OIH, LULU, DNDN calls, QCOM calls, VXX. Short DIA.
