每日市场点评 --- April 2, 2008

The market held up pretty well following yesterday’s huge rally. All three major indices posted a loss but the decline was limited to less than half of a percent. The news on the economic front was mixed and Bernanke mentioned “recession” for the first time at the Fed Chairman position.

Start with the monthly ADP report, which is often used as a proxy for the more important Non-farm payroll report on Friday. Although ADP includes only private employment and its records of predicting the Non-farm Payrolls in the past are quite mixed, investors still treat it as a market mover. Economists predicted a drop of 45K in the ADP report and instead, it showed an increase of 8K. The news immediately sent stock futures higher and bond prices lower. Separately, the Factory Orders for February dropped more than expected. Economists predicted a fall of 0.8% following a drop of 2.5% in January and instead, it dropped 1.3%. Then we had the testimony by Bernanke on the economic outlook. The Fed Chairman mentioned a possible “recession” before the Joint Economic Committee. We have watched all testimonies by the Fed Chairman since last August and this was the first time he referred to a “recession”. To be more accurate, he used a “C” word – “contraction” in today’s testimony but he did indicate that a recession cannot be ruled out. Like previous testimonies, he still predicted a recovery in the second half of 2008 although he emphasized that the economy probably wouldn’t return to normal growth trend until 2009. The market shrugged off the Chairman’s recession comments as it was quite clear by now that the growth in the first quarter would be close to zero if not negative.

While equities took a pause, commodities had a good day. The CRB commodity index jumped 1.7% led by energy and precious metals. Oil jumped almost 4% despite a huge build-up in the weekly inventory. The US dollar was mixed against major currencies. Treasuries continued to trend lower and the yield curve was flattened as investors see less probabilities of 50 bps cut at the next Fed meeting. As we are approaching the first quarter earnings season, earning results and guidance will be critical for the market moving forward.