Market Talk

We’ve got three minutes and three letters: g, d, p.

Let's see, GDP, up, stocks, cranked...Oh, criminy, that's reverse!

After jumping out to sharp gains this morning on the back of a stronger than expected GDP report, US stocks tumble, with tech shares getting hit particularly hard.

DJIA loses 54 (0.5%) to 10066, down roughly 1.1% on the week, after rising as much as 119 today. S&P 500 drops 11 (1%) to 1074, falling through support at 1080. Nasdaq Comp tumbles 32 (1.5%) to 2147. It’s an ugly selloff, with indexes closing near the lows.

The selloff that began two weeks ago (with a prescient VIX sell signal, incidentally,) has been technically driven. But it’s also been driven by the ever bendable laws of economics: nothing goes up in a straight line, and after a 10-month rally, stocks are overdue for a correction. It’s that simple.

Since cresting in the middle of the month, stocks have come down hard. Since closing at 10711 on Jan. 14, the DJIA is down 6%, and suddenly it’s 10000, not 11000, that traders are looking at. Both the Dow and S&P 500 have slipped under their 100-day moving averages, which had been providing comfortable support.

For the month, the Dow is down 3.5%. It’s only the index’s second losing month out of the past 11 and snaps a six-month winning streak.

Fourth-quarter GDP comes in at 5.7%, its best pace in years. But more than half of it comes off inventory readjustments, and consumer spending — which will drive any long-term recovery — remains weak. Partially that can be explained by a separate report today that showed wages and benefits growing at their slowest rate in about 30 years.

- Overseas stocks ahead of US on correction course. “But note: Over the last year, foreign stocks have mostly followed the US market trend, not led it,” Tom Petruno says. “At this point, they probably don’t have a message for Wall Street so much as they’re looking for a message from Wall Street.”

- “Millions” of Kindles flying off Amazon’s shelves. TechCrunch’s Michael Arrington pegs it at 3 million.

- Hard to draw conclusions in this complicated market. “The markets right now are especially complicated and appear to be facing fundamental things that it has either never faced or not faced in modern times,” says Roger Nusbaum, portfolio manager at Your Source Financial.

- S&P 500 crashes through support. Traders had been watching 1080-1085 level. So much for the strong opening. “The reversal today was telling,” FusionIQ CEO Barry Ritholtz says.

- It’s getting ugly out there. “This type of action, when the market trades sharply down even though economic reports and earnings reports both beat estimates handily, is not good,” Bespoke says. “There’s simply no way to sugercoat it.”

- Seems like Apple hasn’t lost affinity for AT&T. “Apple has been happy with the company as a carrier partner and is confident of its plans to vastly improve its network,” Digital Daily blogger John Paczkowski says.

- Pressure on the euro accelerates as currency falls below $1.39 for first time in more than six months.

- Might be a little soon to talk about “post-crisis” times, Pimco CEO Mohamed El-Erian says. “Too many markets, too many institutions have assumed this would happen quickly,” he notes.

- AIG releases list Of troubled derivatives contracts. AIG says in SEC filing that it’s releasing documents “due to recent public disclosure of the full contents of Schedule A,” a detailed listing of $62.1 billion in notional value derivative transactions its financial products group wrote.

- This blog needs more Gaga!

How do you like them apples?

I’m tired.

Physically I’m fine. But I’m mentally drained keeping up with the ridiculous amount of Apple (AAPL) coverage that has been floating through the blogosphere this week. Considering all the attention the iPad’s unveiling received, one would’ve thought the cure for the common cold was discovered.

Hey, we’re just as guilty as the next news guy, as Apple stories have been splashed all over The Wall Street Journal (and this blog) all week long. A vast majority of my posts this week have been, in one form or another, about Apple.

And guess what? It makes me sick. Because I’m just another cog in the Apple machine.

This is exactly what Apple wants – and it’s absolutely genius. The company leaks some details about a hip new product a few months before its release and then lets the blogosphere do the legwork. Tech bloggers drum up buzz, piecing together as many details as they can about what Apple has up its sleeve. By the time the product is actually released, everyone knows what’s coming. Keep in mind, too, that all this marketing and PR doesn’t cost Apple a dime.

It’s amazing – I dare you to name one other company that can drum up half as much interest about their products, without publicly saying a word, like Apple does.

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C'mon, bears, 5.7%! 5.7%!

Don’t get too jazzed about this morning’s GDP report. The better-than-expected reading, fueled by slower inventory liquidation rather than consumer spending, likely isn’t sustainable.

The headline 5.7% jump looks good on paper. But there are reasons for concern. For all of 2009 GDP fell 2.4%, marking the biggest drop for an entire year since the 10.9% slide in 1946.

And as Calculated Risk points out, residential investment and personal consumption expenditures, the leading sectors for GDP, both slowed in 4Q. The declines aren’t surprising, especially since the personal savings rate rose and will likely continue increasing in next year or two, blog says. Also don’t expect residential investment to start rising until excess housing inventory is absorbed.

“The transitory boost from inventory changes is frequently a great kick start to the economy at the beginning of a recovery – as long as the leading sectors (PCE and RI) are also picking up,” Calculated Risk says. But this report is concerning as “underlying growth remained weak.”

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On a programming note, I’ll be part of a panel tonight, along with author Amity Shlaes, on the John Batchelor Show on WABC radio in New York, at 9:30 p.m. ET. Dow Jones’ Simon Constable is hosting, and we’ll be discussing the economy, including today’s GDP report, as well as the happenings down in Washington.

And while if you’ve read anything here, you probably know how I feel, you should tune in anyway. Who knows, by tonight I could be an unrepentant bull. It’s not likely, but it’s possible.

With a little more than half of the S&P 500′s components checking in this earnings season, 4Q operating earnings, according to S&P, are coming in at an almost absurd 481% increase over last year’s 4Q (the only time the group ever produced a loss, incidentally.)

On an “as reported,” basis, including charges and the like, earnings are up 148% over last year.

However, sales are up only 6.6% from a year ago. The sales gains are “not impressive,” S&P’s senior index analyst Howard Silverblatt says. “Sales are contingent on both corporate and consumer spending, both of which are shaky.”

Capital expenditures by corporations, he notes, fell 22% in 2009, and although there are hopes they rise in 2010, there were hopes in 2009, too. “The general hope over 2009 was that information technology has to benefit from that; oddly enough when 2009 did not produce the results, the sentiment continued based on the belief that the spending eventually has to be made.”

It’s notable that in Microsoft’s earnings release, the company noted it hasn’t seen any discernible increase in enterprise spending and isn’t even hopeful that an increase is on the way.

So, again those profit-growth rates are coming mainly as a function of cost-cutting, which in large part translates into layoffs (which also alleviates the need to new capital spending, by the way. Nice how that one works; if you don’t have more bodies in the office, you don’t need new desk, chairs, filing cabinets, computers, phones, training manuals, etc.)

“While the situation continues to improve,” Silverblatt says, “it is just baby steps on what appears to be a long, slow recovery, which given the current economic and political environment, is sure to be more than a bit bumpy.”

Have faith, citizens, we're on the job.

We’re going to be especially cranky today, because we’re going to be spending this whole day listening to every sell-side talking head vaunt about today’s GDP report, which if you read past even the headline number you’ll see isn’t anywhere near what it’s cracked up to be.

Okay, the headline number came in well above expectations. GDP rose at an annualized pace of 5.7% for the fourth-quarter, well ahead of consensus views of 4.8%. Keep in mind though that a lot of folks we read and talk to thought it could come in higher, about where it did print.

But understand that the biggest factor in that “blistering” number was this: businesses cut inventories by only about $33 billion, compared to $139 billion in the third quarter. Because of the way inventories are accounted for within GDP, that difference ended up contributing 3.39 percentage points of the 5.7%. Consumer spending, by contrast, contributed 1.44 percentage points.

That inventory kick is a one-time thing, consumer spending is what drives growth over the long term.

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Onward the march of progress, citizens.

Torrent of quarterly earnings reports eases up for today, but there’s a trio of economic data releases that should arouse some interest this morning.

First look at 4Q GDP due at 8:30 a.m., with guesses on growth ranging from 4% to well over 5%, largely based on businesses rebuilding inventories. Frankly, we haven’t been too convinced that the scale of inventory restocking will be as impressive as economists tout, mainly since anecdotal comments from truckers and railroads — the ones that transport the goods for replenishment — suggest little pick-up in volumes in the quarter. We know retailers weren’t aggressive with inventories headed into the holiday season, and consumer goods makers have said retail is still being careful on how much they stock.

January Chicago ISM (used to be PMI) due at 9:45am ET, and Reuters Univ of Michigan final look at Jan consumer sentiment at 9:55am.

US dollar index flat. S&P futures perking up, now up 4.40; DJ futures up 41. Ten-year flat, yield at 3.65%.