May

28

Stock Market - Pre Open Report May 28th 2008

By Chuck

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APR DURABLE GOODS ORDERS: -0.5% V -1.5%E; EX-TRANSPORTATION: +2.5% V -0.5%E
- Prior Ex-Transportation revised from 0.9% to 1.7%

April’s durable goods orders report on the surface would make one believe that there is a big reversal in business investment spending, however the increase was not broad based and was attributed to a reversal in the previous months’ decline in electronic equipment and appliances. Without the bounce back in this category, durable goods orders would have fallen 1.8% compared to the 0.5% reported. Additionally, core capital goods orders would have risen only by 0.14% compared to the 4.2% reported.

Pre market futures spiked after the durable goods data was released, but in the minutes that followed most of those gains have already been lost. Bond yields (10 year TNX) spiked following the news as well. But in this case a spike in bond yields is not good for equities. The Federal Reserve cringes whenever yields go up. Rising yields results in other interest sensitive instruments to follow, i.e. mortgage rates.

I see a gap up open with a flat trading day to a possible ’sell the news’. Keep an eye on the TNX, if yields go above 4% you may see some rapidly increasing volatility in the equities market.

Nothing in this mornings data changes our view of the declining economy.